Getting the most out of your portfolio means considering a number of strategies to get the most out of the stocks you own. Here’s four strategies anyone can employ to beat the market and the professionals.
Avoid the potholes
Down trodden sectors like coal, iron ore, mining services, risky resource explorers and biotech stocks with zero revenue should be avoided. While you might miss out on one stock that soars thousands of percent, you are also likely to miss those deadbeat stocks that lose most if not all of your capital. Once it’s gone, it’s gone. Forget punting on Mount Gibson Iron Limited (ASX: MGX) – the risks are too high.
Limit your trading
Trade just 5 times a month and with Commsec and you’ll be paying $1,800 in brokerage over a year at $29.95 a trade. If you have a long term horizon, it always pays to keep your end goal in mind. Trading in and out of stocks that will generate great long term returns is disingenuous, and will detract from your gains. Most investors would be better off with portfolios of between 10 and 20 diversified stocks.
Dividend paying stocks are important
Ok, we probably all know this right? But they can be a godsend during market crashes, providing income while your portfolio is getting smashed. And over the long-term, several studies have shown that dividends can provide as much as half your returns. Insurance Australia Group Limited (ASX: IAG) is paying a 6.4% dividend fully franked, while Telstra Corporation Ltd (ASX: TLS) sports a 5.3% dividend yield, also fully franked.
Keep some cash on the sidelines at all times
You never know when the market is going to take a turn for the worst. At those times the optionality of cash allows you to dip into the market to pick up those bargains, without being forced to sell any of your other stocks, which may have been marked down. Reject Shop Ltd (ASX: TRS) is trading at half the price of its 52-week high, and may have some short term issues, but over the long term could thrash the market. The same goes for Coca-Cola Amatil Ltd (ASWX: CCL), and it boasts a 6% dividend. In a few years’ time, both companies could look ridiculously cheap in hindsight.
It takes time building wealth and let’s face it, we all could do with some help. But over the long term, there are ways of generating a $1 million portfolio.