While there are some investors who enjoy making returns from their stock portfolio without growing them, most investors live to witness an exponential growth in the value of their assets. You see, there are numerous ways to increase the value of a portfolio, and the best approach will depend on various factors, including the amount of risk, time frame, and the amount of capital that has been invested in creating that portfolio.
Several strategies can be applied to boost the value of your stock portfolio. Some of these methods are more effective than others, while some cost more time or capital to be successful. In this piece, we'll be looking at tested and trusted ways to increase the value of your portfolio. Let's begin!
Here's a list of the most effective strategies to grow your stock portfolio:
Define Your Growth Target
The concept of growth is subjective - especially in the world of investing. There are several meanings that you can give to the term. To start with, a simple increase in the value of your portfolio may be referred to as growth. For instance, when a certificate of deposit yields interest on capital.
However, most long-term investors refer to growth as an overall capital appreciation. In this type of scenario, the overall value of the investment will increase after some time. For instance, when the value of the stocks in your portfolio increases by about 250% in the fourth year of acquisition. It's important to remember that most returns accrue over long-term investment. If you wish to get large returns in the short term, you may end up committing too much capital or investing in volatile assets.
If you wish to grow your portfolio, you need to note the type of growth, the duration required, and the amount of capital you want to commit to it. When you have accurately outlined all the important factors about the development of your portfolio, other plans to increase its value will be easier to apply.
One of the simplest and most effective ways of growing your stock portfolio over some time is to buy and hold securities or assets. You can buy any quantity of investment and let it keep growing exponentially. Keep in mind that the value of your investment may increase or decrease exponentially before getting to its long-term goals. As an investor who has opted to buy and hold stocks, you may wait and carry out only minor monitoring till your portfolio grows to the desired level.
Investors that try out the buy and hold strategy care little or nothing about short-term price movements and the information displayed by indicators. They only operate with a long-term goal in mind.
Learn How to Time the Market
Investors who follow the markets closely or are constantly updated about ongoing activities in the sector will be able to grow their portfolios without having to buy and hold for a long period. Another way to get the best out of your stock investments is to learn how to time the markets correctly. When timing the market, you need to stay aware of periods when the valuation of assets drops by a lot. It would help if you also were mindful of periods when the valuation of assets rises by a large quantity.
As long as a person can correctly time the dips of the midmarket's dips line, they will find the best time to buy assets and sell them. This type of strategy will yield better returns over a short period when compared with simply holding the purchase for any particular period. However, you have to be versatile in technical analysis and indicators to gauge market conditions.
If you are the type of investor, who doesn't have time to constantly monitor the state of their asset, this type of investment strategy may not be the best for you. It will be practically impossible to catch all the big and beneficial financial moves on the market.
Diversify Your Portfolio
Often, this strategy is combined with the buy-and-hold approach. When investing for a long period and trying to preserve the capital that you've spent, it's a good idea to diversify your portfolio. Diversification involves investing in more than one type of digital asset at once. This means that you will purchase stocks with varying features, such as volatility, volume, etc.
Many types of risk can be avoided due to diversification. Multiple studies have shown that asset allocation is the key to success over an extended period. A reasonable combination of assets will let your portfolio grow smoothly with less risk and volatility. The purpose of diversification is to ensure that your portfolio isn't affected when one investment is performing poorly.
A diversified portfolio is crucial to the success of any investor. You need to be familiar with different types of asset allocation that agree with your end goals and the amount of risk that you are prepared to take on. . If you take your time to construct a diversified portfolio that considers numerous market conditions carefully, you will find it easier to grow the value of the assets in your possession. However, if your portfolio isn’t well-grounded, you will suffer immeasurable losses or miss out on the big market moves.
When trading stocks or buying them as a future investment, you always have to keep in mind that you are dealing with money. As a result, you have to be careful about what you are committed to. Yes, there will be those who would try to rip you off your hard-earned money. Therefore, you have to do your best to protect yourself from their influence. And how can you go about that? It’s quite simple - by doing research.
Yes, whenever you intend to commit your money to a company’s stocks or are interested in any sector, do your research. An investor that does a lot of research would be able to identify the bad eggs that are on the market quickly. You may even discover gems or undervalued stocks that will give you the type of exponential growth that you want. They will also find it easier to make better investment decisions. And because all your investment decisions are made based on good research, you will find it easier to trust them - even when market conditions may appear unfavorable. Without adequate research, it will be practically impossible to get through the tough times on the stock market.
Opt For Smaller Companies
When investing, many investors have their eyes set on the biggest brands and companies. They feel these big names would offer them the result and stock growth they are looking for, but this is far from the truth. Most times, big companies offer the least level of growth that you can enjoy on your stock portfolio. Remember that the big company has achieved most of its exponential growth in the previous years. If you invest in them after they have expanded and scaled up to become multinationals, they won’t grow as much as they did in the past.
The real joy in investing and growing your stock portfolio comes from investing in small companies that are yet to boom. Small companies with a lesser market cap have more potential for growth than big brands. While they may not eventually grow to the level and scale of activity of the top names in the industry, their market cap still has a lot of room to grow and expand. For instance, Apple has increased by about 450% in the past five years to have a market cap of $2.5 Trillion. However, the next 450% will likely take longer than the next five years.
Smaller stocks will receive fewer media coverage. As a result, investors may need to conduct a lot of research to discover them. However, when you add them to your portfolio, you stand a chance of making a lot of money. An investor is supposed to prioritize his income growth from each asset above the increase in the overall portfolio value.
Reduce Investment Turnover
Investment turnover occurs when you pull your money out of one stock and invest in another. Selling your old stock may be due to heavy losses or news that another store would do better. As catchy as the term sounds, investment turnover is every investor’s downfall. You have to make sure you buy the stocks and invest in the business.
Therefore, if you aren’t willing to be a part of a business or company for at least 15 years, you should not consider buying shares. Short-term investments are irrational, volatile, and not as profitable as many think. Why? Because of investment turnover. If you have been pulling your money out of failed stocks and investing in one that does well, your profits would only be half of what they should be. You have lost a good amount of your capital to selling at disadvantageous positions.
Besides the danger of selling at disadvantageous positions, investment turnover will cause you to incur charges. The profits gained from long-term stocks are taxed less than from short-term stores.
Reduce overall cost
As an investor, you also have to find a way to reduce the cost of every stock purchase or sale that you make. Costs such as fees, sales loads, brokerage commissions, mutual funds expenses, and so on would only reduce the amount of money you can commit to the investment. An expense ratio of about 1% may not seem like a lot, but over time it would accumulate into something more. By finding ways to reduce the amount of money you spend as fees on stocks, you could save hundreds or thousands of dollars. The money you have saved will be added back to your portfolio.
And that’s all on how to grow your stock portfolio. Without any doubt, investing in stocks is a lot of work. There are chances of losing your money or coming out with tremendous results. However, you need to know how to take the right steps to ensure that things work out well for you. Every investor will develop a stock portfolio of assets to which they intend to commit their resources. This portfolio will determine the level of performance that the investor would enjoy in the market. If you have compiled your portfolio and things are failing to go well, it may be a sign that you need some help. You can go through the details in this article to learn the right way to grow your portfolio.