Lots of people have tried to outperform the market. Day trading, being behind their screens 24/7, trying to find the best buys and sells across the globe. Driven by the romanticized view of investors such as Warren Buffet, they aim to outperform the market and become rich fast.
The reality of successful traders, however, proves otherwise. In this article, we will delve into the three tricks that allow you to get higher returns on your investments.
Do not try to outperform the market
This might seem a bit counter-intuitive. How can I retrieve higher returns when not trying to outperform the market? It turns out that tracking the market, using a diversified portfolio, will provide you with higher returns than any other holding. This concept is known as passive investing and is used by many traders across the globe.
Why this strategy is hard
It might seem easy to simply invest in an index and keep the holdings, structurally investing in it on a monthly or quarterly basis. This requires a long-term mindset, being free from the sentiment of the market. This means two very important things: do not sell when markets go down and continue to invest when this happens. This also holds when markets are on the rise. Let the compounding of your portfolio, through the use of total return indices, do its magic for you.
Track the stock market with caution
With financial technology (known as FinTech) on the rise, we see more people getting hooked to the markets. With applications ranging from Robin Hood to eToro, these applications aim to get your attention and continue to trade. As explained in our first trick, this is not beneficial for your portfolio. Instead, you should focus on the long-term, while being aware of market dynamics.
A stock market tracker can help
Instead of following the market through brokers, consider a stock market tracker instead. Here you can integrate directly with your broker(s) and create a real-time overview of your holdings (including the magic of compounding at work). You can set up notifications when important market news is released, or your holdings go up or down by a set threshold. Such a stock market tracker results in peace of mind compared to continuous monitoring on broker’s websites and applications and reduces the tendency to day trade.
Delta.app is a good example
One of the leaders in the field is Delta, which offers both traditional and crypto tracking. Want to learn more about their functionalities? You can visit their website to learn more: https://delta.app.
Dollar-Cost-Averaging on your holdings
Dollar-Cost-Averaging (DCA) is a strategy that refers to dividing your purchases over time, resulting in an average purchase price over a longer period. This leads to less impact of volatility and can be combined with reinvesting your dividend pay-outs. This is most effective when you select a small set of investments and continue to invest for the very long term. For example, you could pick an index that tracks the S&P 500 with a riskier but smaller portion of an emerging market index. This results in a diversified portfolio across markets while allowing you to repeatedly invest in only two products.
