3 ways to improve your portfolio’s success
Fsp Invest, 09 Sep. 2013
Tags: portfolio, how to improve your portfolio’s success, profitable investor, how to become a more profitable investor, fees, trailing stop, fundamentals
To improve your portfolio’s success, there are a few things you can do. By implementing a few key rules, you’ll be in a better position to make your portfolio more profitable. Read on to uncover three ways to improve your portfolio’s success…
Nobody said that investing was easy. But you can make your portfolio work harder for you, the team of experts at Investment U explain.
Key rules to make you a more profitable investor
The following rules can make your portfolio more profitable…
#1: Never lose your shirt on an investment – ever
Anyone can buy a stock.
The real art of investing, however, is knowing when to sell. And trailing stops can nicely remove any guesswork.
Such a strategy will protect your profits and cash. Run a 25% trailing stop behind any position. And a 50% trailing stop on smaller-cap stocks.
Without any kind of sell strategy, emotions come into play. And emotions are almost always wrong. But by adhering to a disciplined trailing stop strategy, you can keep emotion-driven trading errors out of the way.
It cures greed. Eliminates fear. And does away with wishful thinking.
Of course, trailing stops aren’t the only sell discipline out there. But they’re one of the easiest to implement and they serve two purposes…
- They make sure you never let a small loss become an unacceptable loss.
- They keep you from selling stocks while they’re still trending up.
#2: Always focus on the fundamentals for the long-term
Forget timing the market. You don’t need to worry about what the Greek central bank is doing.
While maintaining an awareness of world events and trends is important, it’s no way to make day-to-day investing decisions.
Instead, focus on the investment in front of you, starting with the fundamentals. Put a premium on earnings… cash flow… balance sheets… product pipeline… supply-and-demand… sound management… and a company’s position in the market.
Share prices tend to follow earnings. And make sure you always understand the investment – and the risks – before plunking down your money.
#3: Cut your fees and expenses to the bare minimum
Incurring too many fees can be your portfolio’s silent killer. Given that, learning to invest your own money – and, in turn, erasing a big chunk of your fees – is a sure-fire way to better returns.
But it’s not the fees themselves that hurt – it’s the loss of the compounded value of those fees.
Without fees, a R100,000 portfolio earning 10% a year grows to R11.7 million after 50 years. Add in a 1% fee, and your ending value quickly shrinks by R4.6 million. (Only R794,000 of that difference is actually fees. The rest comes from the lost gains associated with those fees compounded over time.)
In short, seemingly low fees can take a serious toll on your investment portfolio’s long-term performance. Use a 25% trailing stop to guide – and reduce the number of – your trades. And look for high-quality stocks you can hold for years.
So there you have it, three ways to improve your portfolio’s success.
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