investment
There are ways to boost your investment returns that don’t require a working crystal ball or a DeLorean hitting 88 mph. They do require some understanding of the factors that influence your return on investment.
If you want a higher investment return, you’re going to have to take on more risk. While that rule isn’t always true—there are uncompensated risks out there, and that higher return is almost always just a higher EXPECTED return—it generally holds true.
Timing the market, even using valuations, could also be thrown in with these other uncompensated risks. Eliminating these risks may not improve your long term returns, but they will certainly improve your risk-adjusted returns, and over the long run, probably will both decrease your investing costs and increase return on investment.
Becoming smarter about taxes is a great way to boost returns, but there can be additional risk when you decrease your taxes. For example, deferring taxes lowers your bill now, and probably in the long-run, but there is a potential risk there to increase your total tax burden in the long run in some situations.
Decreasing the cost of your advice by negotiating a lower rate with your advisor, moving to a lower-cost advisor, or learning to manage your own portfolio and becoming your own financial planner decreases your investment costs, and thus boosts your after-fee returns.
Stocks have higher expected returns than bonds over the long run, primarily because the risk is higher. So the more of your money that you put into stocks (and similarly risky assets) the higher your expected returns, long-term.
Just as stocks are riskier than bonds, and have higher expected long-term returns, so some stocks are riskier than others. For example, small value, microcap, and emerging market stocks have significantly higher risks than US Large Cap stocks like Apple, GE, and Facebook.
Some bonds have higher expected returns than others. While those bonds may not do as well in a financial crisis, and some of their higher return may be due to the fact that those securities are really part equity and part fixed income, the long-term data on their returns is quite clear—taking on additional term and credit risk increases returns.
The most common investment added is real estate, which enjoys similarly high returns to equities, but fairly low correlation. In addition, physicians and other high-income professionals, by virtue of being accredited investors, have access to a whole slew of investments