How can we minimize risk while increasing returns in investing?
When it comes to increase the returns on investment with minimising risk, there are some strategies we should follow. Even though there are ways which helps to improve the return on investments, it also depends largely on investors ability to handle money and manage investment options.
Image Source: dreamstime
Ways to improve returns on investment:-
- Stay disciplined and consistent:
Market is unpredictable and there can be sudden ups and downs. You can not control market, but can control your emotions by discipline and consistency in investment. Consistently saving and investing, will grow your investment portfolio faster. Example: PPF and SIP for long term in equity MFs.
- Diversification:
Diversification of portfolio and right allocation in investments reduces risk on investment return. An efficient allocation of all asset classes ie. Equities, Mutual funds, fixed income (e.g., bonds), cash and cash equivalents, real estate, commodities, and currencies can reduce the overall portfolio risk which can also improve the expected returns.
- Regular Review and Rebalancing:
Portfolio review and rebalancing of investment on regular interval is important to stay on track, to improve returns and to minimize risk. With the time and market conditions, a portfolio can drift away from its original asset class percentages. Hence, it's necessary to review and rebalance it in align with your financial goals.
The process of adjusting the portfolio back to its original asset allocation is rebalancing. It can be done by:
-Adding new investment in the asset class which is underweighted OR
-By selling a part of the over-weighted asset class and book the profit OR
-By investing the profit amount to theunder-weighted asset class
Rebalancing can be done after taking into consideration your risk, goal and asset allocation.
- Tax effective investing:
Tax on your investment returns have a great impact on the performance of your portfolio. While we can not completely avoid the tax but it's possible to minimize the tax on returns. One can plan in advance for exiting the investments, decrease the unnecessary trading or money withdrawal and can invest for long term or till maturity.
- Long term Investing:
Having long term view in investments is an essential trait of right investor mindset. Make sure to invest for long term with a goal in mind.
- Take calculated risk:
Risk and Returns have inverse relationship. Taking too much risk without thinking, can result in concentrated portfolio with chances of losses. On the other hand, not taking enough risk can not give you high returns. Hence, one needs to take calculated risk to balance the risk and returns which can provide safety with returns.
Hey! Open an account with Zerodha to invest in stocks and mutual funds. Use this link to get 300 reward points.
- Investment Fees:
Pay attention to brokerage. Finding low cost investment options can help to improve the returns. Lowering your brokerage expenses just 1% can make a massive impact when compounded over time.
- Invest with a goal.
- Don't chase returns.
Stick to your investments if you have invested with a goal and after considering your duration of investment and risk.
Decline in the market is common—it happens about once or twice a year. One who realize this are don't sell his investments in a panic, and remain invested, benefitting from the wealth building power of compounding in stocks in long run.
- Take help of financial planner
If you are good in financial and investing, and looking to just grow your wealth, you may not need a financial advisor. On the other hand, if you are not confident in investing money or do not understand financial markets, then a financial advisor could be worth it.
Thanks for reading. If you enjoyed this article, please like and share for better reach!!