Low interest is on the rise and people are looking to make investments like never before. This kind of environment fosters the need for some low-risk, high-profit investments. While investing may seem like a dynamic and unpredictable market, it’s actually rather simple when you get down to it. It’s all about acquiring the right knowledge about the market and utilizing it. Here are some investing hacks that have helped experienced investors cash-in on low-interest markets.
1. Balance your portfolio
To stay on target with your investing goals, you need to make sure that you have a wide variety of investments to fall back on. This is something that you need to work on constantly, as investments tend to come and go. Rebalancing your portfolio is one of the better ways you can bring some variety and safety into your investment strategy. The question is: how do you properly rebalance your portfolio without making glaring mistakes? It’s a lot easier than you might think.
Take a look at the proportion of asset classes in your portfolio every year and take the time to review them. As per your target asset allocation mix, you need to rebalance them for optimal results. Stop your funds from being too focused on a single asset class. This can be a potential vulnerability for your portfolio and it needs to be reallocated. Don’t rebalance too frequently as it will take a lot of your time and effort, while only giving you minimal results.
2. Consider offshore growth funds
You can never have too much diversification in your portfolio. The more you turn to reliable and interesting investments, the more it will pay off in the long run. One such group of investments includes offshore growth funds, which have been growing in popularity over the past few years.
While stock exchanges might have most of the world’s most popular and powerful companies, they don’t list all of them. Many world-class companies are not listed in individual stock exchanges, which means you need alternative investment options to reach them. Offshore growth funds will offer opportunities to invest in these companies in a more diverse environment. Aim for emerging and European markets and you’re going to have a lot more variety in your portfolio. Offshore economies like China and India have shown steady growth, which is why they are prime targets for great investments.
3. Always investigate finances
The most important asset you can have in your portfolio is knowledge. Most people invest blindly in temporary trends that are subject to change. Real investors know that investments require lots of research and crucial information to turn out successful. As long as you do your due diligence, you can expect your investments to pay off eventually.
Take a good look at the companies that you decide to invest in. Investigate their financial health and determine whether or not they are a good target for a long-term investment. If so, will this long-term investment bring in good numbers? Some businesses can last a long time, while not showing a lot of profit or growth. This is why it’s crucial that you check their financial status.
Remember to investigate individual companies thoroughly. Take a look at their annual report that comprises the Income Statement. It would help if you also checked the Balance Sheet of the business, as this can tell you a lot about the funds going in and out of the company you want to invest in. The more in-depth you go with the company, the more you can utilize your knowledge to see if they’re worth a long-term investment.
4. Use tax-advantaged accounts
Other than making successful investment decisions, how can you increase your earnings from a proper investment? It isn’t much else you can do, but you can always try to decrease your losses from taxes. Most investments are taxed at different rates, which means you can use some lee-way to get more out of your investment than you previously thought.
A smart way to do this would be to use tax-advantaged accounts, which don’t generate tax bills each and every year. Many of these types of accounts let your money grow while also leaving it exempt from various forms of taxation. This can be an enormous benefit to your portfolio, and it can provide you with lots of growth without penalties. Keep in mind that not every kind of account is going to be beneficial to your interests. Some might have restrictions on how to use the funds that are kept there. Some good options include IRA and Roth IRA accounts, which are favourites among long-term investors.
5. Purchase low
As any good investor will tell you, you need to get in on a stock before it starts to get big. You have to estimate how much growth a certain business will get and then determine whether or not you can get in before it has reached its peak. Purchasing low is difficult at times, but it’s doable when you have the necessary information you need to gauge the true value of a business. This can be learned in a number of different ways.
The book value of a business is a great indicator of what kind of stock price you should be aiming for at any given moment. Look for deals on shares that are priced below one and a half times the original book value of the stock. Use it as a metric for the kind of options you want to invest in. If you’re looking to invest in some quality stocks, you need to make sure that the P/B ratio of a stock is at least more than one and a half. This will give you the best chances for good returns on your investment.
6. Avoid stocks that are a little too hot
Don’t let the media hype get to you when you’re trying to build a strong portfolio. You’ll find hot stocks in the news every single day. A business will suddenly spring up and take a big share of the market and it’s going to make headlines. Everyone starts talking about them, and before you know it, it becomes a hot stock which people are clamouring to invest in. However, looks can be deceiving and you shouldn’t get let yourself get burned because of stocks that are too hot.
Stocks that are in the news today might not be all that hot tomorrow. It’s likely that this meteoritic rise is only a temporary fad that will fade after a short while. You don’t want something this short-lived in your portfolio. When it seems too good to be true, you can pretty much guarantee that it is. When a stock rises way above its actual value, you’re going to see it fall back to this value very soon. It’s not worth your time to waste any effort into timing the stock market to get profits out of these investments.
7. Keep away when markets are volatile
When you’re adhering to a strict set of rules, investing is easy. However, this set of rules only applies when everything is under control. It’s not uncommon for the market to turn volatile anytime there’s financial uncertainty. During this time, all rules go out the window and nothing is as clear-cut and predictable as it should be.
You’ll hear a lot of investors parrot that this is an ideal time to “game” the market. However, this is just a sales tactic to get you in the game. Volatility is not good for stocks and you should avoid investing whenever the market proves to be a bit too unstable. It would be much wiser to wait for it to stabilize and then continue with building your portfolio.
8. Invest in corporate governance
The performance of a product or service isn’t the only measure of a business. Maintaining a company for extended periods of time requires good governance and leadership. Businesses that lack these things often fall under their own weight after a while, even if they have brilliant ideas behind them.
Good corporate governance policies are essential for long-term business health. You can expect businesses that have these policies to treat their stockholders and shareholders well. Good governance will allow a business to eventually outperform other businesses in the same range. Companies that lack strong leadership are susceptible to financial difficulties and fraud. Look at the current leaders in the company and how it is governed to get a good idea of where the company is headed.
9. Hold on to good shares
Even when you’ve made good investment decisions, it can be difficult to keep up the momentum after a while. People are always tempted to sell their shares once they start going up. After all, it’s a guaranteed profit with no discernible downsides, so why not cash in immediately?
The thing is, you’re already counting on a kind of “guaranteed profit” by investing in good stocks. You shouldn’t give in to the temptation as it robs of future earnings. If you’ve done your homework and invested in some good stocks, you should stay patient and let them grow to their full potential. A small, short-term profit doesn’t mean nearly as much as a strong portfolio that lasts years.
10. Don’t jump on cheap stocks
While buying low might be good advice, don’t let it get to your head. Just because a stock is cheap doesn’t mean it’s going to change any time soon. You buy stocks with the intent of seeing them grow and mature. A low-quality investment doesn’t have to improve over time. Chances are, a bad stock will perform even worse when given enough time.
Think long-term when searching for stocks that are priced low. You have to take potential growth into account before making your investments. If a particularly cheap stock seems like it could grow quite a bit, make sure you’re certain of this growth before investing any significant funds.
11. Include fixed-income options
If you consider yourself a conservative investor, introducing some even safer options to your portfolio would be a good move. Fixed income options tend to have a lot of variety and safety attached to them, which can lead to some pretty good investment decisions.
Choosing best-fixed income investments for your portfolio can be pretty tricky. Peer to peer lending is considered a good option, albeit being a relatively new addition to most investor’s portfolios. One of the many benefits of this type of investment is that it’s diversified enough that you don’t have to worry about losing out if a single party defaults. If your investment is spread out across hundreds of different borrowers, you can expect to have minimal losses even in the worst scenarios.
12. Balance liquidity
The liquidity of an investment tells you a lot about the kind of asset it is and how you should handle it. Lots of investors will either vouch for or against liquid assets, depending on what their goals are. The truth is, both liquid and illiquid assets have their place in your portfolio. However, not every asset is equally useful when it’s illiquid.
Trading liquidity is a pretty big measure of a stock’s health. It indicates the supply and demand for a particular stock. If a stock is relatively illiquid, this means you’re not going to find a lot of buyers in a short amount of time. This can end up being quite a limitation for your investment. Aim for high-liquidity stocks, as this indicates a very high demand for the business in question.
As it turns out, investing isn’t as complicated as it seems at first. Research and intuition are the two most useful tools at your disposal and you have to use them wisely. As long as you put in the necessary effort to get to know the most optimal investments in the current market, you can expect some slow and steady growth over time. Build your portfolio from the ground up to be stable and you don’t have to worry about losing your hard-earned funds to market fluctuations.
Lucas is a business consultant and editor in chief at savingforserenity.com. Besides that, he has a passion for writing. Doing his research, exploring and writing are his favourite things to do. Besides that, he loves playing his guitar, hiking, and travelling.