3 Tips to Maximize Your Investments

A reader recently asked me a very open-ended question. He simply wanted a few tips for maximizing his investments. Having spent last week covering somewhat arcane topics, I thought a back-to-basics article sounded like a good idea.

So without further ado, my three best tips for maximizing your investments:

1. Maximize your savings rate,
2. Pick an asset allocation that is?suitable for your risk tolerance?and stick with it (until your risk?tolerance changes), and
3. Minimize the investment-related costs that you pay.

They?re not very exciting, are they? I would argue, however, that just about everything you need to know about investing falls into one of these three categories.

Priority #1: A Sufficient Savings Rate

This one is straightforward: If you?re not saving enough, not even a perfectly crafted portfolio will get you to your goals.

Choosing an Asset Allocation

When it comes to asset allocation, the goal is simply to avoid creating a portfolio that?s much too conservative (such that your returns would probably be very low) or much too aggressive (such that you?ll likely end up panicking and ?selling low? during a bear market).

It?s important to understand that no matter how much research you do, you will never find the perfect asset allocation ? because there is no such thing. Instead, there?s a whole spectrum of satisfactory allocations, which can be achieved by adjusting any of the levers that affect the risk level of your portfolio:

• Your?overall stock/bond allocation,
• The riskiness of the stocks within your portfolio (with small-cap stocks being riskier than large-cap stocks, value stocks being riskier than growth stocks, and emerging market stocks being riskier than developed market stocks), and
• The riskiness of the bonds in your portfolio (with nominal bonds being riskier than inflation-adjusted bonds, corporate bonds being riskier than Treasury bonds, and long-term bonds being riskier than short-term bonds).

In other words, even if you limit yourself to funds from just one fund company, there are a hundred different ways you could put together a portfolio with a risk level that is suitable for your needs.

Reducing Costs

As an investor, there are many costs that you face, and it is generally to your advantage to reduce them as much as possible.

Firstly, there?s generally no need to pay any account fees or brokerage commissions these days, given that multiple brokerage firms (e.g., Vanguard, Fidelity, Schwab, TD Ameritrade) offer the ability to build ETF or index fund portfolios without paying any such costs.

Next, you?ll want to make a point to select funds with low expense ratios, given that a fund?s expense ratio?is the best predictor of its future results.

And because taxes are a cost too, it?s usually in your best interests to:

• Get the most of your tax-advantaged space by contributing to IRAs and qualified plans at work before investing in a taxable account,
• Carefully consider whether you should be making Roth contributions, pre-tax (?traditional?) contributions, or both, and
• Invest in a tax-efficient manner when forced to use a taxable account (e.g., by tax-loss harvesting?and?using tax-efficient funds).

And finally, if you decide to pay for professional assistance with your portfolio, you?ll want to find the most cost-effective way to buy the service(s)s you need ? which often means staying away from bundled offerings that include many services in which you?have?no interest.

"A wonderful book that tells its readers, with simple logical explanations, our Boglehead Philosophy for successful investing." - Taylor Larimore, author of

Source: http://www.obliviousinvestor.com/3-tips-to-maximize-your-investments/

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