Achieving a decent return on the ASX isn't too difficult in theory. If you just buy a market-tracking index fund like the SPDR S&P/ASX 200 Fund (ASX: STW), history tells us you can expect an annual return averaging between 8-10% over the long-term (that's including holding through market crashes like the GFC).
Unfortunately, a lot of investors don't get anywhere near these kinds of returns. Even professional fund managers struggle to beat a broad market index over longer periods of time. According to a report in the Australian Financial Review, an estimated 83% of active fund managers underperformed the S&P/ASX200 (INDEXASX: XJO) index last year. That's some pretty awful odds.
But I think it's entirely possible for the average investor to outperform the market. Here are three ways that I think you can use to you can boost your returns and give it a shot.
Minimise Turnover
Buying and selling a high volume of shares is a proven way to undermine your portfolio's total returns. Every time you buy or sell ASX shares, you will likely incur brokerage or other trading costs, which can quickly build up over time. On top of that, if you are lucky enough to bank a gain, selling the shares cuts the government in on your profits through capital gains tax – further eroding those gains. Warren Buffett likes to say his favourite time to sell is never for a reason!
Find winners and stick with them
By definition, beating the market requires stocks that give you higher gains than the average share. Companies might have one good year, but often big wheels keep on turning and winners keep on winning – so why stop the profits from rolling? It's in our nature to want to realise stock market gains when they happen due to the volatility of the whole place. But don't sell a winner just because it's done well for you once – you might regret it when it keeps on winning without you.
Block out the noise
We live in an age of instant news, opinion and information. In all likelihood, you can scour the internet for any company and find a thousand reasons to buy it and a thousand reasons to sell it. All of this white noise can be very distracting and even misleading in some cases. Most of the time, you would do better not to listen to the opinions of others and just ask yourself why you might want to own a particular company
Foolish Takeaway
I think these three simple tips can help you boost the returns of your own investing portfolios. Often, it's just simple changes in mindset and attitude that can make all the difference in your stock picking over time.
