5 Tips to Maximize your Investment Returns

Financial experts agree that investing is one of the most effective ways to diversify your streams of income and grow your wealth. Yet, investors report mixed experiences on the matter. Some have done exceptionally well, while others have performed poorly and lost part or all of their capital. As an aspiring investor, how do you ensure you are one of the former and don’t end up like the latter?

Here are a few tips:

1. Create an investment plan and stick with it

You might be so excited about becoming an investor that you decide to convert all your cash into investment capital. This would, however, be a mistake. You might end up being forced to withdraw from your investment prematurely just to cover your normal living costs. Depending on the product you invested in, early withdrawal might have financial penalties and this negative experience might dampen your will to invest.

To avoid all of this, have a comprehensive investment plan. Aside from your investment goals, it should also contain a detailed list of your income streams, monthly expenses and the amount you can afford to invest. Then, gradually build your investment according to the plan.

2. Engage an investment manager

Leaving your capital in the hands of a capable, time-tested fund manager has several advantages. Firstly, you benefit from their expertise in the investments’ space. This helps you to avoid mistakes commonly made by beginners who are not knowledgeable in the field. Secondly, it allows you to take a back seat and still enjoy good returns while letting the fund manager do all the hard work. Thirdly, investment managers are able to access a wider pool of asset classes than individuals, allowing you to capitalize on reduced risk and a diversified portfolio.

Choose wisely who you trust to manage your funds. At the very least, go with an entity that is regulated by the Capital Markets Authority (CMA). Consider also its track record, reputation in the industry and past performance.

3. Build good investment habits

Due to the magic of compound interest, investments generally give you the most value over the long term. Therefore, you need to build a set of good behaviours to support your strategy. These include topping up your investment each month, limiting access to seed capital, and only withdrawing upon maturity. You can also automate some of these processes or give detailed instructions to your investment manager so that you don’t forget to do it yourself.

4. Consider the cost as well as the returns

Each investment has a cost. Most investors have a tendency to focus on the potential returns and ignore this fact. The problem comes when the costs are so high, it diminishes the amount that they end up taking home. By all means, chase a high return, but also consider your investment manager’s fees, the charge of buying or selling an asset, taxes, and turnover cost because these will affect your bottom line.

5. Apply investment best practices

Start investing immediately with what you have and then grow it gradually. Ensure you have a diverse portfolio, which you will rebalance regularly over time. Additionally, don’t try and time the market. Instead, take a long-term view because the market tends to go up even if it takes small dips along the way. You should also focus on the big picture and always have your investment goals in mind and ensure that whatever actions you take are in line with them.

Being a successful investor requires time, patience, and a sound strategy. The tips above should help you along your journey. If you would like to learn more about maximizing on your investments, email clientservices@sib.co.ke