5 Hacks To Enhance Your Return on Investments

Names such as Warren Buffett, George Soros, and Peter Lynch have become virtual celebrities throughout the investment community. Known for their ability to realise healthy profits and often appearing to possess a crystal ball in terms of upcoming market movements, these individuals are truly in a class of their own.

When you reach the level of 9, 10 figures or even Billionaire status, it's safe to say you know what you're doing when deploying capital and sourcing returns from the market.

While there is an element of luck involved in investing, each of these icons of investing will attest to the fact that their success did not occur by accident.

They will cite previous errors and the need to adapt constantly. This very same attitude should be embraced by anyone who hopes to maximise their efforts and to capitalise on the latest opportunities.

Lessons we can learn from top investors

Just like we look up to the world's best athletes for tips on how to improve our game, we can look towards the world's best investors for tips on how to improve our finances.

Let's, therefore, examine five novel approaches that could very well provide your trading style with a breath of fresh air.

1. Harvesting Tax Losses

Imagine for a moment that you have recently taken a loss on a specific asset. As opposed to simply walking away, why not use these losses to offset future capital gains tax obligations?

This is known as tax loss harvesting, and it may very well be able to reduce your overall liability.

Furthermore, capital gains savings can then be reinvested into similar securities, enabling you to enjoy a healthy level of market exposure once again.

2. A Touch of Conservatism

Online repositories of professional investment guidance, such as Exness Insights, have made it clear that stability is key within any portfolio. We are not only referring to diversification in this sense. What about individuals who want to obtain a stable income without being saturated with risky positions?

In this case, bonds could very well be the answer. Some of the most popular types include:

• Municipal bonds
• Treasury notes
• Corporate bonds

The main intention here is to ensure a steady return over time; a particular benefit when used in conjunction with a retirement plan or a similar high-yield savings package.

3. The Notion of an Investment "Sandbox"

The value of historical trading data cannot be overstated. It therefore stands to reason that using this information to your advantage would make a great deal of sense. This is when a concept known as backtesting illustrates its merit.

This technique involves the process of applying a theoretical strategy or pricing model to previous market conditions. The goal here is to evaluate how effective the approach would have been.

Models that worked well in the past are likely to yield similar results in the future.

Furthermore, it is possible to fine-tune any framework and to test it once again without being exposed to any real-world risk. Countless institutional traders and wealth management firms have already taken advantage of such opportunities.

4. High-Yield Bonds

Some investors shy away from market downturns. Others instead see an opportunity to take advantage of undervalued assets. The use of high-yield corporate bonds is a perfect example.

Let us assume that a broader market correction has occurred, and the value of stocks has dramatically declined. While corporate bonds may follow this trend, their loss in value is comparably mild (generally between 10 and 15 per cent).

Traders could, therefore, dedicate a percentage of their portfolio to these bonds when they are still devalued, thereafter expecting a healthy rate of return once the markets obtain greater buoyancy.

This approach was widely adopted during the global credit crisis of 2008 and the 2020 bear market.

5. Passive Index Investing

Index-based investing became popular during the 1970s, and many traders still rely on this strategy to produce a stable source of income.

As the term suggests, a passive index fund (or an ETF) will track the value of an index over a period of time. Any realised gains will reflect the growth of the sector itself (such as the S&P 500).

Here are some unique advantages associated with this approach:

As passive index investing is a relatively "hands-off" strategy, traders are subject to lower fees and commissions.

• Holdings can be diversified across many sectors.
• An excellent opportunity for long-term growth.
• Limited exposure to sudden (short-term) market volatility.

Which One is the Best Option?

All of these known "hacks" are great ways to enjoy a higher return on investment versus sitting on cash or leaving your money in a savings account. While these returns will likely average out to a higher amount than traditional savings accounts or money market fund, they are not without risk.

Remember, the higher the prospective return, the more risk you're taking on, and when you don't have billions to play with a bad move, it can cost you dearly and leave you in a poor house.

These hacks have shown dividends for many investors, but it is important to decide which approach aligns with your unique trading style and understand that losses could still occur.

Be sure to speak with a qualified wealth management specialist to learn more about the mechanics and obtain additional information.

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Tags: Investing, Guest Post