Maximize Your Return On Investment, Guaranteed!

I have discovered a surefire way to maximize the returns you get on all of your investments, no matter what you’re investing in. If you follow this advice, I guarantee that if you have a winning investment now (even if it’s just barely in the positive), my tip will strongly improve the cash that investment puts in your pocket.

Even better, I’m not going to sell you this sure-fire tactic in some sort of two-day seminar or an investment kit. I’m going to give this advice away!

Are you ready for it?

Here is the one guaranteed way I’ve found to increase your investment returns.

Live cheaper and direct that saved money into your investments.

It simply works. You can spend years and years studying investments to squeeze another percent out of your returns by getting just the right mix of investments without overshooting your risk tolerance. Or you can simply spend less each year, bump up the raw amount you invest by 10%, and quickly start seeing a 10% increase in your investment return.

The truth of the matter is simple: frugality and saving/investing are deeply linked to each other. Living within your means and spending less than you earn lets you use that excess money towards whatever goals you have in life – which is exactly the purpose of investing. The less you spend, the bigger the “gap” between your spending and income becomes, the more you have to invest, and the bigger your returns are.

There’s a reason Warren Buffett lives in an older house in Omaha, Nebraska, after all.

Another important thing to remember: investments don’t have to be stocks. Cash in a savings account is an investment – it’s simply a very secure one with a low, fixed rate of return. Virtually anything you buy or any account you place your money into where you expect to recoup some of what you put in and hope to recoup more than you put in is an investment. Vintage baseball cards can be an investment, for example.

Here’s an example of what I’m talking about. A 25 year old person wants to start investing so he can open a business in his later years, but he can’t see where he can possibly afford to start doing it. He’s happy with his life and most of the “frugality” ideas he’s heard sound unenjoyable.

Instead, he finds just a small handful of money-saving tactics, the type he can do once and save a lot of money from over the long run.

He installs a programmable thermostat in his home and programs it, saving $20 a month on his energy bill.
He also spends a weekend air-sealing his home to reduce air flow to the outdoors, saving another $20 a month on his energy bill.
He decides to give up soda, mostly as a way to lose weight, and starts drinking water instead. That saves him another $30 a month.

That’s it – no other changes. He then sets up an automatic savings plan and transfers that $70 a month into a savings account for investing purposes. Over the next twenty five years, he averages a 5% rate of return on his money – yes, 5% is really low, I know, and he could likely do much better than that. At age fifty, he has $43,000 in the account to seed his small business with. If he gets an 8% return, he has $67,000 to start with.

That money came from the magic of frugality leading investments. By cutting back your spending and channeling the money you’re saving into investing, even if it’s just into a savings account, you start building for whatever dreams you have for the future.

That’s the secret of bumping up your investment returns.

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  1. lurker carl says:

    How many people would actually save that money? Particularly from something like an energy bill that fluctuates from month to month and year to year, not to mention pocket change from stopping daily soda consumption in order to lose weight. I’d advise people to divert a salary raise or bonus into a savings account when they aren’t interested in changing their lifestyle in order to save money.

    I EXPECT my investments to return more than I put in. Investments requiring hope is called gambling. Collecting baseball cards is a hobby, selling cards for profit is a business – neither would be considered investing.

  2. Karen M. says:

    Where can I find a savings account with a 5% interest rate? I’d put my money there in a heartbeat.

  3. CB says:

    How many people are actually getting a 5% return on investment over decades? I added up what I put in my retirement account versus what I have now (almost 30 years), mostly stock market, and have 5.5%, which is more than the few other people I’ve talked to who have a negative return over decades.

  4. Adam says:

    @CB…I have to laugh at Dave Ramsey’s constant use of 12% rates of return in all his calculations. 5.5% sounds like a solid number to use for long term, and if I beat that amount I’d be happier still.

    Trent’s point is a good one in that you should save as much as you can for retirement which will buffer you in case of returns less than planned.

    Sourcing this increase in savings could come from anywhere, and though I hate to admit it, David Bach’s style of automatic payments before you see it is probably the best way to go, rather than Trent’s thought of trying to snowflake your way into saving more.

  5. Des says:

    @CB – I’m curious where you were at before the recession. My 401k is only 5 years old (mostly stocks), but even though those 5 years include the worst recession in my lifetime, I still have double-digit annualized returns just parking the money in mutual funds. Were you at 5.5% four years ago? Do your friends still have negative returns even after the recent come-back?

  6. Steffie says:

    Some of the first few months of savings are negated by the expense of the programmable thermostat and the sealing materials. That stuff ain’t cheap ! I would really like to know where to get more than 2% return, my credit union is giving me 1/2 % on savings and even ING is only giving around 1.5%. Most companies have suspended raises and the 401k match in the last few years, can’t put money we don’t have into automatic savings. And I already don’t have cable, the internet, Netflix etc to cancel to save any more money.

  7. CB says:

    Des, I was above 5.5% four years ago, I’m sure. Even higher before the dot.com bust.

    I figured out the 5.5% figure a few months ago as part of “The Money or Your Life” assessment. I’ve had more of a buy- and-hold strategy with individual stocks and some mutual funds that have performed okay. I noted that even my index funds haven’t held up that well over the long haul. One of them shows a negative return over the decade.

  8. Scott says:

    As much as I appreciate the wisdom, it seem society just keeps making it harder. Prices continue to go up. My employer just started charging $75 per month for health insurance per individual and twice that for a family. I bought a tv antenna and am cutting cable. Can’t find a cheaper internet service though. Tried the energy saving electrical strips but they don’t work well for everything. I have a prepaid cell plan that is saving me tons because I don’t use my phone much but I’m running out of places to cut back and whenever I do, I get charged more for something else. Should I be forced to get a second job because every business wants more of my money and can charge whatever they want because they know we are held hostage?

  9. While paying off my house, I was hoping my investment in the stock market would climb. I thought that I could make it grow (and I did… it’s currently worth $27,000, thank you “Great Recession”).

    But if I had put an additional $5,000 each of the last 10 years and uses the techniques like dollar cost averaging, rebalancing and diversification… It would be worth a lot more money today… $75,000 or $100,000 or $150,000?

    Following what you describe above would have enabled me to have that kind of money instead of $27,000… People focus too much on the rate of appreciation (and they should), but initially the feed into the market is more important than the yield it returns!

    Where were you 10 years ago :)

  10. Thank you for this post!!! I now have some backup that vintage baseball cards are, in fact, a real “investment”… I have ALWAYS known this, but my son and I have had a hard time persuading my wife of the true potential cards have.
    She doesn’t believe my Beckett Baseball card Monthy magaines…. Thanks again!!!

  11. George says:

    Compound interest takes a long time to kick in. Typically, if you’re depositing a fixed monthly amount, your investment won’t even match that deposit rate for 7-10 years (depends on return).

    So… saving early and saving often is more important for the first decade than the returns you get from the investment.

  12. chacha1 says:

    LOL, Moby those cards are only an investment if you’re willing to sell them when they’re worth more than you paid for them. Otherwise, they’re just toys. If you collect them because you love them, that’s fine … but don’t kid yourself that anyone else wants them more than you do. The moment you NEED to sell them to make money, they’re apt to be “worth” a lot less than you hoped.

    Even a stock that increases in price only makes you a profit if you sell it while it’s at a higher price than you paid. A gain is only a gain when it’s realized.

    Investments should be things you’re not emotionally attached to (and this includes real estate. It’s not going to make money for you unless you’re willing to sell it while it’s high).

    There are very big potential downsides to buying Things that you think you can sell later on to make money. Just one is that the more Things you have, the more space you need, and space costs money.

    There is never a downside to just putting money away. Money is money is money, and with a very small amount of common sense you can ensure that at the very least your money maintains its value (i.e. doesn’t get nibbled away by inflation).

  13. John says:

    The price of a collectable will only go up if the supply goes down or the demand goes up. The reason baseball cards appreciated in the past was that many of them were not preserved AND there was an increase in the number of people interested in baseball cards. Today, almost all baseball cards are preserved, and it’s unlikely the demand for baseball cards has reached it’s peak.

    Remember when everyone was collecting Beanie Babies? They were going to be worth thousands someday. Now you can find them on eBay for $1 or $2 a piece.

  14. deRuiter says:

    With anything, you have to start at the end / the result of an action, and then go BACKWARDS to the start to find the motivation! Those who publish price guides for things like baseball cards, antiques, stamps, collectibles, PUBLISH THE GUIDES TO MAKE MONEY SELLING THE GUIDES. You, as the collector, find the high prices in the guides very exciting, the high prices listed make you feel you have done well to buy these cards, they massage your ego, they validate your collecting, SO YOU BUY THE GUIDE, GIVING A PROFIT TO THE PUBLISHERS OF THE PRICE GUIDES. If price guides gave you the figures at which you are actually able to SELL your cards, YOU WOULD NEVER BUY THE GUIDES BECAUSE IT IS NOT A ROSY PICTURE, PARTICULARLY FOR THE PRIVATE OWNER. Price guides give you a high (often fake, inflated) value at retail, not the wholesale price at which you will have to sell. Selling collectibles is hard, there are costs which must be deducted, and if you make a whopping amount on something you owe income taxes. THE MAIN PROFIT FROM THE COLELCTIBLE INDUSTRY IS THE FIRST SELLER OF THE ITEMS, AND THOSE WHO PUBLISH PRICE GUIDES!

  15. LiveCheap says:

    Trent, naturally, I have to echo your comments on getting more return by cutting expenses. That $60 cable bill for a middle class family takes $100 of income to pay it. People often forget that right off the bat, they pay 7.65% FICA, federal taxes, and then state taxes. Easily can pay 40% in high income tax states combined.

    5.5% Return: Look, the last decade was awful for stocks because you essentially started with the DotCom stratospheric levels in 2000 and ended up on the upslope of a recovery in the “Great Recession”. My returns on my retirement funds only went up when I become more actively engaged based on valuation levels and sectors. There were some areas where you could have made a killing in the last 10 years including energy, international, and healthcare. All of these were tied to large forces that shouldn’t have been much of a surprise.

    Once you have enough money, I really feel that you have to spend the time and understand companies and make educated investment choices. Other than that, get the lowest cost index funds, invest in sectors that you think will do and follow Trents (and my) advice about living cheaply.

  16. George says:

    Here’s another thought: if you really get your cost of living down (see Early Retirement Extreme’s $6k/yr example), then you can have a $0 income tax bill unless you’re making substantially more than you need to live.

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