Using Fee-Free Funds
Costs matter when setting up your portfolio to achieve better returns from your investments. When it comes to reducing costs, it should be clear that fee-free funds are better than funds with fees. Since you are not paying any fees, you have more money working for you, which increases performance. All else being equal, the fund that doesn’t charge fees will keep more money in investors’ pockets compared to those that do charge fees.
Using Index Funds
Index funds enhance returns in the same way that fee-free funds do. By keeping costs low, you can retain more of your money working for you, thus increasing overall returns over the long term. But the benefits of index funds do not stop at low costs. These passively managed funds also eliminate manager risk, which is the risk that can detract from a fund’s performance.
Using Dollar-Cost Averaging Strategy
The dollar-cost averaging strategy is an investment strategy that involves regularly and systematically purchasing stocks. The strategic value of dollar-cost averaging is to reduce the total cost of the stock (or investments). Additionally, most dollar-cost averaging strategies are established with automated purchase scheduling. For example, this includes regular purchases of mutual funds in a 401(k) plan. This automation removes the possibility of investors making poor decisions based on emotional reactions to market fluctuations. In other words, the dollar-cost averaging strategy not only keeps money flowing into your investments, but it also buys shares in all market conditions, including bear markets where stock prices fall. Simply put, you buy regardless of conditions and benefit from the long-term price increase. You can set up your own dollar-cost averaging strategy by creating a systematic investment plan (SIP) at your chosen brokerage or mutual fund company.
Buying Mutual Fund or Sector Funds
Many investors believe that if they want higher returns, they must invest in high-risk funds. However, this is only partially true. Yes, you need to be willing to take on higher market risk to achieve above-average returns. But you can do this in a way that reduces risks by diversifying across different types of aggressive funds.
Asset Allocation
You do not need to rely solely on aggressive mutual funds for the potential of higher long-term returns. It is not the choice of investment that primarily affects portfolio returns; rather, it is asset allocation. For example, if you were lucky enough to purchase above-average stock funds in the first decade of this century, from the beginning of 2000 to the end of 2009, your 10-year annual return wouldn’t have a chance at outperforming intermediate bond funds.
While stocks tend to outperform bonds and cash over the long term (especially over three years or more on average), stocks and mutual fund equities can perform worse than bonds and bond mutual funds for periods shorter than 10 years.
So, if you want to maximize returns while maintaining reasonable levels of market risk, an asset allocation that includes bonds can be a smart idea. For instance, let’s say you want to invest for ten years and maximize returns with equity mutual funds. But you want to maintain a reasonable level of risk concerning the loss of your capital. In this case, you might stay aggressive with 80% in stock funds and balance the risk with 20% in bond funds.
Conclusion
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The best mutual funds are those that combine a suitable distribution that matches your risk tolerance and long-term investment goals. Additionally, once you determine your investment goal, your money may work harder in mutual funds with low costs.
Source: https://www.thebalancemoney.com/boost-portfolio-returns-mutual-funds-4019410
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