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.