An Insight into Top 4 Strategies for Better Portfolio Management
If you want to earn higher returns on your investments then it will be necessary to pay attention to proper portfolio management. You can also take advice from a portfolio manager to know which investment options will be right for you and provide better returns. Our aim here will be to examine some strategies that can help you earn higher returns on your investment.
Strategies for Better Portfolio Management
Own the Market Not Beat It
There is hardly any evidence that a portfolio manager can fully predict which stock, sector or country will be performing better in future. As such, a major portion of money or portfolio managers who strive to do better than the market, usually under-perform relative to benchmarks they had set. Thus, choosing someone for portfolio management with good performance only in recent times will not be the right thing to do. A better thing to do will be to find someone who tries to own the market instead of beating it and focuses on these of index funds.
A Global Approach
Diversifying internationally will be a positive approach in portfolio management since you will be able to utilize greater number of investment options in comparison to investment scope you will have when you are investing only in Canadian market.
Maintain Low Expenditure
Mutual funds have expense ratios which are actually the money you have to pay your portfolio or fund manager so that the portfolio manager can invest the funds. You will not be writing a separate check for this amount but will be paying it indirectly. This amount gets deducted from assets of the fund and as such, you will be earning lower returns from your investment.
Thus, you aim should be to look for funds which have associated expense ratios that are under the 0.50% mark and it will be better to avoid those high performance mutual funds which have expense ratio in the range of 1.5% or more. Apart from expense ratio you will also have to look into turnover that refers to frequency with which investments in a portfolio are purchased or sold by the fund. In case of higher turnover, you will be incurring greater transaction cost.
Accordingly, your aim should be to avoid funds which have a turnover of more than 30%. Ideally, you should look for broad market index funds since they usually turnover in very low single digit marks.
Avoid Cash Drag
Generally, it is seen that many of the investment funds tend to hold cash with the aim of taking advantage of purchase opportunities. However, the problem with this strategy is that cash does not produce any returns and become a drag on fund's performance. The same cash can produce better results when it is invested in bonds or stocks. Thus, as part of your portfolio management strategy, you will have to ensure that you are own a specific mutual fund where cash held is not more than 5%.
As we can see there are different strategies which can help you earn more out of your investments and reduce risks.