Written by Katie Gomez

Learning the market and developing your trading skills is where every trader must start. However, over time the focus shifts from learning how to trade to learning how to trade well. Like anything else, once you get the hang of something, you are more inclined to excel at it. Stock trading can become a steadier source of income than your 9 to 5, but you must be willing to put in the work—it’s not just about trading to make money—you also have to learn to maintain it. So, how do I manage my portfolio to maximize my returns? In this article, I will review five tips on managing your portfolio best to maximize your returns and transform it into a more consistent source of income.

1. Tune out the “experts.” Is there one way to invest? Is there some holy grail secret to success as a stock trader? If there was, everyone would be doing it. The reason every trader’s portfolio looks different is that different individuals are managing them. Every investor’s trading plan will include trial and error, as every strategy has pros and cons. However, finding a “good” strategy you can stick with is better than finding a “great” one you can’t. If you already have something good going on as a trading plan, don’t start from scratch because you see another trader with a “better strategy.” 

Successful traders all have one thing in common: confidence in their trades. No matter what your strategy looks like, if it works for you, keep doing it! However, there are specific tips you can choose to follow that can help build (not recreate) your current strategy to maintain your portfolio better and maximize your returns. 

2. Find lower-cost ways to invest. Successful investors learn to play the long game regarding the stock market. If you want to set yourself up with ample savings, retirement, and steady sources of income every month, you have to shift your focus to the big picture. You can do this by practicing risk management and finding lower-cost investment options. For instance, it may be easy to ignore expenses during bull market periods, especially if you are making money. 

However, the impact of those expenses can increase over time, eventually surpassing those profits—the little things DO matter. If you can commit to lowering your costs by just 1%, you will see a significant change in your portfolio’s long-term performance. For example, if you earn an average of 10% a year but pay 2% in investment fees, you are left with a net return of 8%, leaving your $100,000 portfolio able to grow to $466,097 in a span of 20 years. 

However, if you cut your expenses in half (to 1%), you would see your $100,000 transform to $560,440 in 20 years (~$94,000 difference). Although little things like investment expenses may seem irrelevant to worry about, the little things matter when playing the long game. 

Tip: When choosing an online broker, make sure you look for either a low-annual or no-annual fee, thus leaving you with lower transaction costs. 

3.) Start diversifying your portfolio. The worst thing to do is put all your eggs in one basket, having your financial livelihood dependent on one stock or other security. The concept of diversification is well-known by traders but can easily get lost during bull market periods, which never last as long as we think they will.

4.) Rebalance regularly. As an investor, you must habitually rebalance, for rebalancing returns your portfolio to its original level of diversification. For instance, in a bull market, if you had intended to have 60% of your portfolio invested in stocks, 30% in bonds, and 10% cash, once your allotted stock % has risen above 60, it would be time to rebalance your portfolio. On the other hand, in a bear market, if your stock has fallen to 40%, you should respond to the market decline by rebalancing to increase your current position. Furthermore, once the market recovers, rebalancing sets you up to take advantage of potential gains. 

5.) Continue investing, no matter what the market is doing. The market is constantly in flux, and when we get paranoid about that change, we start to make emotional decisions. The market’s direction should not affect your contributions, but it is hard for traders not to let it. If you want to maximize your returns and start learning to trade more consistently, you must practice staying on course, even when emotions get heightened. 

Whether in a bear or bull market, either direction can invoke hesitance in contributing to your portfolio. In bull markets, strong returns can persuade you to think continued contributions are no longer necessary, but they are. In bear markets, you may let paranoia take over, convincing yourself that contributing to your portfolio now is pointless or that you would simply be throwing good money after bad. 

While the assumptions mentioned above are prevalent among many investors, they are incredibly counter-productive. Contributing to a bull market will cause your portfolio to grow more quickly and provide you with new capital for future investments. The same goes for bear markets; when negative returns cause your portfolio to fall, your contributions will be your saving grace to help minimize that decline. 

When you take a step back from the short-term panic of loss or clouded judgment of profits, you can see the bigger picture and start making more long-term decisions that are more productive and beneficial toward your financial future. 

References 

https://www.doughroller.net/investing/7-ways-to-improve-your-investment-returns/

https://www.investopedia.com/articles/stocks/11/increase-investment-performance.asp

https://www.investopedia.com/articles/stocks/11/6-ways-improve-portfolio-returns.asp