Even the most meticulously selected investment portfolio can plateau out, leaving you with only account maintenance fees and round trip trade charges to deal with. Luckily, you don’t have to stick with your initial portfolio picks forever; you can upgrade it to maximize returns on investment and minimize risk during volatile times. Here are three ways to take your investment portfolio to the next level.
Choose Equities Over Bonds
Notwithstanding the steadily increasing volatility in the stock market over the past 10 years, equities have been able to hold their ground. In fact, equities have been consistently outperforming bonds. Sure, stocks are relatively riskier than their government-backed counterparts, but a good combination of these two assets in a portfolio can generate handsome returns all while keeping risk at a minimum.
When looking for equities to invest in, go for small capitalization companies over bigger corporations. This can sound counterintuitive due to the riskier nature of smaller companies since they are not yet as financially established as their deeply-pocketed and investor-backed large counterparts.
Albeit, studies show that small companies have been outperforming large companies in the US for almost a century now, with an average annual ROI of 2.1 percent. Internationally, small companies are also beating large companies with an average return of 5.8 percent each year. Thus, moving your investment portfolio from purely large-company equities into a mix of small-to-mid companies can give it a much needed boost.
Keep Growing as an Investor
Like many skills in life, investing requires deliberate practice and consistent growth. You need to keep growing your knowledge base and experience in order to adapt your trading approach and strategies when the market shifts. Although it would be much simpler if the market just stays in a bullish or bearish cycle for a prolonged period of time, that is rarely the case. On a daily basis, prices will move in all directions. To avoid the risk that comes with market volatility, keep learning.
There are dozens of educational materials out there that can help you learn more about risk management strategies, portfolio diversification, and alternatives to traditional assets. Options Animal, for instance, gives you a detailed walkthrough of options trading including credit spreads, bull puts, bear calls, and Iron Condor. There are free videos of getting started with options investing, such as what an option is, how it works, and what strike prices are.
By studying the markets regularly, you can adopt habits that better serve your investment goals and adapt to the ever-changing market conditions.
Technology has taken the investing industry from zero to sixty in a matter of a few decades. Today, anyone with a smartphone and internet connection can invest their money without having to go through all the bureaucratic red tape that existed before. Gone are the days when you had to phone in every order to your broker and then wait minutes for a confirmation on your order.
Today’s investors can easily find which brokerage firms have the cheapest transaction fees and open/close positions in a few clicks of the mouse button or a few taps of their phone screen. Platforms, like Robinhood, are only a few of the many 21st century tools out there that are changing the way people invest.
Another great example of technology that empowers today’s investors is Robo Advisor. Firms, like Acorns and Betterment, have created these software programs to manage client portfolios using sophisticated algorithms. A vast majority of robo advisors focus on low-cost exchange-traded funds, but more programs are being released to cater to other financial assets.
For many people, their investment portfolio is what they rely on for their retirement nest or acts as an emergency fund in dire times. In such cases, you’d want your investment portfolio to perform at their best. Even after taxes, broker fees, and inflation have been accounted for, an upgraded investment portfolio can produce modest and livable returns.