How to Make Your Money “Pop” (Safely)
April 15, 2008 – by Richard Band
It’s the quest for the Holy Grail. All of us would like to improve our investment results especially in a year like this one, where the stock market has rocked back and forth like a wagon in a mud rut.
Yet many folks go about trying to boost their returns the wrong way. Every day, I’m bombarded with email solicitations (today’s version of yesteryear’s junk mail) promising me “explosive” profits if I just buy some stock with a great story—a gold deposit, an oil find, a life-changing new technology.
Once in a while, the claims turn out to be true. The problem, though, is that they’re not true often enough. Too frequently, these high-risk ventures flop. Your overall performance, if you follow the roulette wheel approach to building wealth, is likely to be abysmal.
There’s a better alternative. You can speed up the process of wealth accumulation, without resorting to Las Vegas-style tactics. Here are four safe and sure techniques to accelerate your profits:
1. Cut your investment costs.
We’re no longer in the 1990s, when you could count on 20% a year with any half-intelligently-managed mutual fund. Today, we need to fight for every tenth of a percent. Yet I’m amazed at how many investors still allow themselves to be fleeced by greedy brokers and money managers.
A few years ago, I closed out a variable life insurance policy because it was costing me over 2% a year. My reason being: why should I dish out to the insurance company (and the fund managers it employs) a quarter of everything I expect the stock market to earn over the next decade?
I decided to handle my own money through a brokerage account at TD Ameritrade (800/934-4448) for as little as 20 basis points a year (20 cents per $100 invested). In today’s world, no amount of professional management is worth 10 times that amount.
“But,” you say, “I’m not prepared to pick all my stocks and bonds myself, and then monitor the whole shebang.” Which brings me to Point #2.
2. Learn to discern among mutual funds.
A few fund managers really do earn their keep, but probably not more than one in 10. Move your money to low-cost funds, such as Selected American Shares (SLASX; 800/243-1575 or www.selectedfunds.com). You can sign up with just $1,000 at Selected and get one of the nation’s finest money-management teams. SLASX and its companion fund, Davis New York Venture, have beaten the Standard & Poor’s 500 index over every rolling 10-year period since 1969. Also, there’s no sales charge or redemption fee for SLASX.
If you need a fund that includes bonds as well as stocks, I recommend Oakmark Equity & Income (OAKBX; 800/625-6275 or http://www.oakmark.com). Oakmark typically has 50%-75% of its portfolio in stocks, and the other 25%-50% in bonds. So you’ve got a ready-made “balanced” portfolio. And, like Selected American, Oakmark Equity & Income has put up some great numbers through the years. The minimum, again, is just $1,000.
And remember, avoid “load” (sales charge) funds like the Black Death.
3. Buy what’s down and sell what’s up.
Obviously, that’s an oversimplification. What I mean, though, is that you should review your portfolio periodically (at least once a year, and preferably once a quarter). Trim investments that have climbed by an abnormal percentage and add to those that have lagged, assuming you’re satisfied the underperformance isn’t due to some long-term fundamental flaw.
4. Throw new money into the pot.
I call this “free leverage.” I’ve increased my net worth almost 2,000% since 1987. Partly, I’ve done it by owning the same prudent investments I describe in Profitable Investing.
But I’ve also regularly added new money to the kitty from savings. This new money doesn’t change my rate of return, but it enlarges my investment base so that my total wealth—in dollar terms—has grown much faster than it otherwise would have.
Put these four simple steps into practice today. They’ll make you richer faster—and you won’t take one iota of extra risk. This is just a sample of the great advice that Richard Band brings to his Profitable Investing subscribers each and every month. If you’re looking for a sensible and safe way to invest on Wall Street, sign up for your risk-free trial subscription to Profitable Investing right now. Try it for a full six months to see for yourself how well it works for you. If you don’t agree that it helps to make your investing better, we’ll promptly refund every penny you’ve paid. No questions asked. Join today.