How to Generate Double-Digit Returns from Your Investment Portfolio
Investing can seem daunting, especially if you’re targeting double-digit returns. With the right strategies and mindset, it is possible to generate consistent double-digit returns from your investment portfolio using the best stock broker for intraday trading. In this guide we’ll show you the techniques and approaches to maximise your investment portfolio to achieve just that.
Understand your investment goals and risk tolerance
Before looking at these strategies, it’s important to consider your investment goals and risk tolerance. Are you investing for retirement, a home down payment, or to build wealth? Your goals will largely determine your investment horizon and what types of risk is suitable for you.
Assessing your risk tolerance is just as important. Some investors are very risk averse and are only comfortable taking traditional investments that may only offer single-digit returns. Others are comfortable with more risk for possibly higher rewards, such as the most profitable renewable energy investment opportunities. Knowing your risk tolerance will indicate what types of investment vehicles and strategies are right for you.
Diversification: The ultimate risk minimizer
Diversification is one of the most basic investment principles. By investing in different asset classes, sectors, and geographic regions, you can reduce risk and improve your investment portfolio’s overall return. A well-diversified portfolio usually can weather most market conditions and economic cycles. It also means you won’t lose it all on a single investment.
Consider these areas of diversification:
Asset class diversification: Stocks, bonds, real estate, commodities, and others each have their own risk-return profile. By mixing them, you balance risk.
Sector diversification: Putting your investment dollars in companies from technology, healthcare, energy, consumer goods, and other sectors helps mitigate risk. If one sector underperforms, another may be making up for the losses.
Geographic diversification: Investing in domestic and international markets can allow you to benefit from global economic growth and reduce the impact of a single country or region’s economic downturn.
Investment Style Diversification: You can mix value investing (buying stocks for less than they are theoretically worth using various company financial metrics) with growth investing (buying stocks for earnings growth potential) and other investing styles to take advantage of different market opportunities.
Active investment strategies
Diversification is very important, but you also need to be active in managing your portfolio if you want to get double-digit returns. Here are a few active investment strategies you might consider:
Value investing
Value investing is the art of purchasing stocks at less than their intrinsic value. An investor analyses the company’s financials, management, competitive advantages, and growth prospects as part of his or her due diligence. If the investor finds the stock is currently undervalued by the market, they will buy shares in the company.
Value investors typically look for companies with strong fundamentals, such as low price-to-earnings (P/E) ratios, high dividend yields, and strong cash flows, among other things. Since they are buying company shares that the market is undervaluing, the stocks they purchase typically have the potential for significant price appreciation once the market as a whole realises the company’s true worth.
Growth investing
Growth investing revolves around targeting companies with strong growth potential—typically in rapidly expanding industries or markets. Growth investors are often willing to pay a premium for stocks—thus they often trade at high P/E ratios—under the assumption that the company’s future earnings and revenue growth will justify such a valuation.
Growth investors seek companies with innovative products or services, strong brand recognition, and consistent revenue and earnings growth. Growth stocks can be more volatile than other types of companies because they offer the potential for substantial capital appreciation if the company’s growth projections are met or exceeded.
Momentum investing
The goal of momentum investing is to profit from the market’s current trends as long as they continue. It is based on the idea that the investor buys and sells according to the recent strength of the stock or the asset. The momentum investor focuses on stocks or assets that are in the news and makes trades according to their potential that the strong trend will continue in the short-term, meaning just for a few minutes or even the next trading session.
A momentum investor capitalises on a similar past. The investor will use trends identified by technical analysis tools such as moving averages and relative strength indicators to determine the momentum of a particular stock or asset. The objective is to enter and exit a trade within a relatively short timeframe and capture significant gains from the underlying momentum.
Contrarian investing
Contrarian investing is the opposite of momentum investing. A contrarian strategy is based on going against the prevailing market bias or consensus. These investors are looking for opportunities where the market has overreacted to the downside and thus created good stocks or assets that are undervalued.
These are stocks or bad assets that are unpopular with the majority of investors but have good fundamentals and the potential for long-term trade. This trading style is based on the belief that by investing in stocks or assets that are trading at less than their intrinsic values, they will eventually outperform the market as a whole.
These investors are buying the stock with the expectation that its value will start to rise and that this will be corrected once the bad news the marketplace has overreacted to gets resolved.
Risk management
While you might be focused on generating double-digit returns, it’s also important to employ effective risk management strategies to protect your portfolio from suffering excessive losses. Here are a few risk management techniques you might want to consider:
Stop-loss orders
A stop-loss order is an order to sell a security once it has fallen to a certain estimated price, and it’s designed to help you limit your potential losses. How these orders work is that you place an order to sell a stock at a specific percentage below the stock’s price, and the order kicks in at the point when things get too bad.
Position sizing
Position sizing involves determining the dollar amount of funds you should commit to an investment, based on its risk profile. As a risk management strategy, this helps to limit the detrimental impact of a large loss on your portfolio by preventing any loss from significantly impacting the portfolio’s overall returns.
Portfolio rebalancing
Rebalancing involves periodically buying or selling assets to maintain your desired asset allocation. The primary goal of this practice is to maintain your desired risk-return profile. Since your ideal asset allocation will change over time due to market performance, and certain investments performing better than others, this thing prevents your portfolio from becoming heavily concentrated in any one investment or asset class.
Diversification
Diversification is one of those things you need in your portfolio and is one of the crucial tools of risk management. If you spread your investments over various asset classes, sectors, and geographic regions, you reduce your exposure to the same level of risk. As a result, this means that if any single investment performs poorly, it will only have a limited impact (if any at all) on your overall portfolio.
Conclusion
Double-digit returns from your investment portfolio are within reach using the best intraday platform. It takes the right strategies, discipline, and mindset to achieve the goal. Stock investing can generate double-digit returns by using the following techniques: diversification, active investing, alternative investments, and risk management ways to boost the odds of earning consistent, above-average returns.
Investing involves risk, and past performance is no guarantee of future results. As a stock investor, continually review your portfolio.
