How To Improve Your Return On Investments? - Outside View by PersonalFN

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

How To Improve Your Return On Investments?
Mar 25, 2019

Investing is an arduous exercise, because of the risk associated with each investment avenue and the research that goes into selecting the ones most suitable for you.

Despite the monetary risk, why should you make investments?

To gain returns on investments, of course.

What are investment returns?

The investment return or Return on Investment (ROI) measures returns over a period of time. The investment return value tells the investor whether their investment has been grossing returns more than the investment cost. Investment returns calculate the overall return value.

What are investor returns?

Investor return is the value of the total purchases minus the total sales of the investor's investments. Investor return also measures how an average investor has fared in the markets.

Investment returns is different from investor returns!

Often it has been observed that average investor returns are quite low compared to the actual investment returns because of what Carl Richards, a best-selling author, calls " Behaviour Gap."

Many investors do not stay invested for longer periods in an asset, thus, leading to fewer returns. They invest in an ad-hoc manner and avoid factoring the most basic element, "Risk".

Risk and returns are two sides of the same coin and directly related? Each investment avenue has a risk, lower the investment risk, the lower are the returns, and higher returns means high risk.

High returns are generated from market-related investment products especially equities as compared to other investment assets (debt and gold).

Let's look at the investment returns these three friends got after five years, based on each one choosing each asset.

Anurag (a professor), Amol (marketing professional), and Ashok (IT professional) had invested Rs 1 lakh for an investment time horizon of five years.

Anurag invested in bank fixed deposits, Ashok in debt instruments and Amol, the aggressive one of the lot, in equities.

Table: Are you picking your investment avenues wisely?

Return on investment (%) Amount invested in 2014 (in Rs) Amount received after 5 years without considering inflation (in Rs) Real rate of return (%)
Anurag- FD 6.9% 100,000 139,275 -1.1%
Ashok-Debt instruments 7.4% 100,000 143,030 -0.5%
Amol-Equities 12% 100,000 176,234 4%
(Illustration purpose only. Return on investment rates are assumed.)

But if you will notice, with inflation at 8% (the average over the 5 years) the actual rate of return is less. Only equities were able to provide inflation-adjusted returns and Amol benefitted from it

Thus, it would be wise to invest in equities. But did you forget the risk involved? I hope not.

[Read: Why Comparing Returns to Risk Is More Meaningful!]

Equity investment carries the highest risk. Hence one should not go overboard and invest in equities; do it taking cognisance of the asset allocation best suited for you.

Consider building a strategic portfolio that consists of an adequate mix of each asset class to balance out the overall risk. The best option would be to invest in mutual funds.


By investing in mutual funds, you gain more if invested prudently.

So, as an investor avoid...

  • Ad-hoc investments by following some investment expert, friend or neighbour, and free advice;
  • Investing without a proper goal-based financial plan;
  • Investing without assessing risk profile;
  • Timing the market;
  • Being biased towards investments or be emotional;
  • And, being impatient to see the growth immediately in the invested amount.

What should you do instead to improve the returns on your investments?

  1. Create a goal based financial plan (include short term, mid-term, and long-term goals such as retirement)
  2. Have an investment strategy according to your financial status and risk appetite.
  3. If unable to devise an investment strategy, seek advice from an experienced, unbiased and ethical financial advisor.
  4. Have a disciplined approach towards investing via SIPs in direct plans.
  5. Be devoid of emotions (panic selling, following herd, or showing biasedness) when managing your portfolio.
  6. Review your investment portfolio as per the changes in the financial status or economic conditions.
  7. Do not completely rely on the advice of an expert; at the same time, carry out your own research.

To gain more returns, an investor must stay invested for a longer time period and take prudent decisions that give them consistent returns. Don't follow what your next-door neighbour or friend does; investing is an individualistic exercise. Hence, plan and invest as per your risk profile, time horizon, and portfolio review should be done to weed out the duds. This will ensure that you can clock an optimal rate of return and achieve your envisioned financial goals.

PS: Are you looking for "high investment gains at relatively moderate risk"? We have a ready solution that could be suitable for you -- PersonalFN's Premium Report, "The Strategic Funds Portfolio For 2025( 2019 Edition)".

In the 2019 Edition of PersonalFN's Premium Report, "The Strategic Funds Portfolio For 2025", you will get access to a ready-made portfolio of its top recommended equity mutual funds for 2025 that have the ability to generate lucrative returns over the next 5 to 6 years. Subscribe now!

Author: Aditi Murkute

This article first appeared on PersonalFN here

PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.

Disclaimer:

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

Equitymaster requests your view! Post a comment on "How To Improve Your Return On Investments?". Click here!

  

More Views on News

The Best Safe Investment for Senior Citizens (Fast Profits Daily)

Jun 4, 2020

With Interest rates near record lows, there is a safe investment which still pays a decent interest.

Franklin Templeton Fiasco: SEBI to Probe for Investment Violations in Wound-up Schemes (Outside View)

Jun 4, 2020

PersonalFN explains the reason behind SEBI's probe in wound-up schemes of Franklin Templeton.

How to Invest in Stocks Now After Nifty 10,000 (Profit Hunter)

Jun 4, 2020

The stocks markets have seen a sharp rally post the crash in March. Here's what investors should do now.

Will the Price of Silver Go Higher? (Fast Profits Daily)

Jun 3, 2020

The price of silver surged last Friday. Is it ready to break out and go higher? Find out in this video...

Should You Extend Your Loan Moratorium? Know here... (Outside View)

Jun 3, 2020

Personalfn explains in its Daily wealth Letter how the loan moratorium extension is helpful for a short while and hurtful in the long run.

More Views on News

Most Popular

6 Charts Showing the State of Indian Financial Markets in 2020 (Sector Info)

May 26, 2020

Six charts showing how Indian financial markets have performed in 2020 so far...

Why We Picked This Smallcap Stock for a Post Coronavirus World (Profit Hunter)

May 28, 2020

Covid-19 has made it a survival of the fittest race for many companies. The ones that can adapt will thrive in a post crisis world.

What the RBI's Rate Cut Means for Options Traders (Fast Profits Daily)

May 25, 2020

The RBI governor has cut the repo rate to 4%. What does this mean for options traders? Find out in this video.

Who Will Be Crowned the 'Multibagger Blue Chip' of the Decade? (Profit Hunter)

May 25, 2020

Will the mutlibagger blue chips of the past decade continue to rule the bourses?

More

India's #1 Trader
Reveals His Secrets

The Secret to Increasing Your Trading Profits Today
Get this Special Report, The Secret to Increasing Your Trading Profits Today, Now!
We will never sell or rent your email id.
Please read our Terms

S&P BSE SENSEX


Jun 4, 2020 (Close)

MARKET STATS