Building a successful investment portfolio is not easy, especially in this current economic environment. According to a recent study by the brokerage firm Charles Schwab, 15% of all retail investors started investing in 2020. Globally, this new wave of investors holds trillion in assets.
However, this retail investing boom will not guarantee financial success to all investors. Why? Incorrect portfolio allocations. Retail investors are likely to make mistakes like not diversifying or de-risking their portfolios. For example, households currently make up only 44% of the average retail investor’s portfolio.
Such short-sighted, unplanned portfolios are bound to fail when we experience global economic turbulences. Thankfully, there are many tried-and-true portfolio-boosting strategies that are simple enough for new investors to understand. Here are the definitive strategies for boosting your investment portfolio in 2022 –
Set Clear Investments Objectives
When investors aren’t clear about their objectives, they quickly become disappointed in their returns. No matter what investment strategy you follow, failure is guaranteed if you pursue the wrong objectives. Know why you’re investing in specific financial investments and have realistic, time-based expectations of your investments.
Some common investment objectives include –
- Appreciating your capital at a steady annual rate (e.g., by investing in private equity funds)
- Preserving your capital by getting protection against inflation (e.g., investing in gold, commodities, and other assets that perform well in inflation.
- Income generation by earning regular dividends from your investments
- Speculating the market by investing in high-momentum financial instruments (e.g., investing in cryptocurrencies)
An investment portfolio designed for capital appreciation will look completely different from one designed for speculation. Neither approach is wrong. But, investors must know what approach is best for their short and long-term financial goals before investing.
Take Strong Long-Term Positions
If you’re only taking short-term positions in the market, you’re building a trading portfolio, not an investment portfolio. The motto “buy businesses, don’t rent stocks” reigns supreme in the investment world. Avoid investing in companies you wouldn’t like to own in the next five years.
This strategy is safe and essential because taking a short-term approach to investing only leads to irrationalities, volatilities, and unpredictability. Holding onto strong investments also yields tax advantages as profits on long-standing investments are taxed at significantly lower rates.
Minimize Investing Costs by Using Technology
Why do investors spend money on brokerage commissions, agent fees, or mutual fund expenses? Because they don’t seem like large expenses in the short term. However, they add up over time to represent unnecessary losses for new investors.
Reduce these costs by taking sole control over your investment-related activities. Use apps to buy/sell stocks. Learn how to perform technical analysis and read stock charts on your own. The best investment is obtaining financial education.
Invest in Real Estate
Real estate investments continue to be the safest way to build wealth. Despite the recent ups and downs in the global real estate market, the demand for homes is still relatively high. That’s why adding real estate to your portfolio is a must. Now, small-scale investors don’t even need to buy residential/commercial properties to own real estate.
They can own shares in private/public Real Estate Investment Trusts (REITs). Owning private REITs is akin to owning shares of an extensive real estate portfolio. However, real estate investments are illiquid. Try not to allocate over 25% of your overall portfolio towards illiquid assets like real estate.
Instead, leverage your equity by selling the property (after some time) and reinvesting the cash profits. Find off-market properties and rental properties. Monthly rental income from these properties will be substantial, even if you pay for professional property management teams.
A Final Note
Every few months, assess each item on your portfolio individually. Keep uncovering hidden areas for improvement. Keep maintaining a positive net cash flow and a strong cash-on-cash return rate.