The S&P/ASX 200 Net Total Return (ASX: XNT) (INDEX: ^AXNT) index has outperformed the popular S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) by almost three-to-one over the past six years.
ASX 200 Total Return V. ASX 200
The S&P/ASX 200 Total Return index includes both dividends and share prices. The more-often quoted ASX 200 (XJO) disregards dividends.
3 simple ways to boost your ASX share portfolio's returns
You're probably saying to yourself, "who cares!"
However, the difference in performance between the two indices gives you a hint at the first way to improve your investing returns…
1. Dividends.
When most people think about property investments they think about buying, then selling at a higher price. It's the same with shares. Most people are interested in shares that go up in price. However, dividend income is a huge part of investing in shares. As the graph above shows, having a focus on dividends within your investing strategy could significantly boost your returns. Franking credits are another tax-effective way to grow wealth.
2. Regularly invest — and reinvest.
Setting up a payment plan and investing in shares regularly is the best way to do it, in my opinion. Everyone should be setting aside some money — even if it is only $10 per month — because you will never get ahead if you are not making the economy work for you.
Reinvesting dividends is just as important. Some companies offer a "Dividend Reinvestment Plan" or DRP, which allows you to take your dividends as new shares instead of cash. Sometimes, the shares are offered at a discount.
3. Double your average holding period.
Recently, I read a post from a leading US investor. He said: "double your holding period and you will double your investing returns". I don't know if he had evidence to back up his recommendation. But I think most investors would be far better off if they committed themselves to holding for longer periods, rain, hail or shine.
Foolish Takeaway
You need only look to the likes of Commonwealth Bank of Australia (ASX: CBA), Woolworths Limited (ASX: WOW) and Fortescue Metals Group Limited (ASX: FMG) to see the value of investing regularly in dividend-paying shares and reinvesting over long periods of time, especially during the tough times.
