Let's face it, everyone would like market beating returns on their portfolio, but how about thrashing most of the fund managers whose job it is to beat the market?
It's easy enough for most investors, and it doesn't involve giving up your day job.
The first step of course is to take charge of your investments and superannuation, and avoid those high fees the fund managers charge. Motley Fool has a series of easy to understand articles that can help you in that regard.
Here's a number of ways that you can virtually set-and-forget your investments…
- Invest in exchange traded funds (ETFs), or listed investment companies (LICs) that give you dividend income, as well as a diversified portfolio of stocks, with very low fees. Vanguard's Australian Shares Index ETF (ASX: VAS) charges 0.15%, pays a distribution quarterly, and tracks the performance of the S&P/ASX 300 Index (Index: ^AXKO) (ASX: XKO).
- Invest on a regular basis, setting up scheduled direct debits or bank transfers to your broking account. When you have a reasonable amount saved (say $1,000 or more), reinvest those funds back into the ETFs or LICs you have selected.
- Take advantage of Dividend reinvestment plans (DRPs). Many companies, ETFs and LICs allow shareholders to take their dividends in the form of new shares. In some cases, those shares are offered at a small discount (up to 5%) to the prevailing price, and you don't have to pay brokerage. For solid blue chip companies like Woolworths Limited (ASX: WOW) and Insurance Australia Group (ASX: IAG), this can build up a substantial portfolio, compounding dividend payouts and capital growth.
- If you choose to take dividends in cash, reinvest the proceeds back into your holdings.
Investing doesn't have to be an 8-hour a day job if you have the right strategy and setup most transactions to be automatic. It also avoids the temptation to trade more often, which can see you lose thousands in brokerage, which creates anxiety, which could lead to more trading and ending up in a virtuous circle.
Follow the simple steps above, and you'll be on the right path to thrashing the professionals and building a significant portfolio. For more tips, you might want to read the report in the links below…
