Investing should be easy. You buy a portfolio of shares and watch it grow over the years. But time and again, some investors find, for one reason or another, that the returns they get lag the market. Here in Singapore, your performance benchmark could be, say, the Straits Times Index (SGX: ^STI). If you find that your portfolio’s return over time doesn’t quite match the returns of the benchmark, then you might be doing something wrong. Here are three quick things you could consider to improve your returns. Cut your losers Look at the companies you own. See if…
Here in Singapore, your performance benchmark could be, say, the Straits Times Index (SGX: ^STI). If you find that your portfolio’s return over time doesn’t quite match the returns of the benchmark, then you might be doing something wrong.
Here are three quick things you could consider to improve your returns.
Cut your losers
Look at the companies you own. See if they are losing ground to competitors, slipping into cash flow problems or losing their competitive edge. These are not signs of a great company to be holding as part of your investment portfolio. So, consider cutting them. They are losers.
Don’t fall into the trap of looking at the prevailing share price in relation to the price that you paid for the share. There is nothing more irrelevant to an investment than the original buy price. Remember that the money you release from your losers could be put to better use elsewhere.
Run your winners
The opposite of “cutting your losers” is “running your winners. Look at the companies in your portfolio that are increasing their profits and improving their competitive position. Try and identify from those companies the ones that are rewarding shareholders with decent return on equity and can afford to pay increasing dividends.
Think about adding more money to those companies – they are winners. Once again, don’t be put off buying more of a good share even if the price might be higher than your original purchase price. A stock does not know that you already own it.
Reinvest your dividends
This is probably the easiest way to improve your returns. A dividend that is not reinvested is a dividend that is not being put to work. By investing the dividends you receive into more shares you could generate even more dividends the next time that a payout is made. It is one of the simplest ways boost your returns.
Some companies operate a dividend reinvestment scheme. Don’t look a gift horse in the mouth. It can be a cheap way to acquire more shares in a company that you already own and like.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.