Creating genuine wealth goes beyond the usual investment routines. In this blog post, we’ll reveal ten clever investment hacks that can supercharge your returns and help you achieve your financial goals more effectively.
The Context
The best way to save money is not to lose it — Les Williams
Real wealth creation involves more than just buying and selling stocks in a portfolio; it also entails constantly balancing the risks and slicing off pennies wherever they can be found.
Think again if you frequently believe that wealthy individuals just invest and withdraw money from stocks or other esoteric assets to grow their wealth.
The bi-focal approach of rational investing has a propensity to wander in all directions!
Making excess profits on a carefully assembled portfolio is challenging. You must be dealing with this daily if you are currently managing four or more asset types on your own.
The House Always Wins
Every financial system operates according to a set of rules, much like a casino, and these rules guarantee that the house always wins. This makes the whole plot a level playing field for all participants. To prevent you from running off with all of those luscious returns, there are cuts, commissions, fees, levies, loads, penalties, and taxes in place.
Why do a few legitimate investors perform better over the long term when all of them follow the same rules?
The simple explanation is that they are more adept at maneuvering through the underlying legal apertures than their rivals. To help you maximize the performance of your investment portfolio, we’re back with a new list of the top 10 fully legal investment hacks.
1. Never Buy At A Higher Price, period!
On our list of the top 10 clever investment hacks, price is the most important factor. This agreement logically applies to both stocks and real estate. When an asset is bought for a price greater than its intrinsic value, investors end up losing money or just breaking even on their investments. Any worthwhile asset acquired for less than its true value is certain to generate outstanding returns.
Particularly for equities, most sell at a premium that is not reflected in their price-to-earnings (PEs). Untrained investors tend to overlook the true value of a firm before making their acquisition because they are clouded by greed, fear, or other psychological constraints.
This subject has been discussed in-depth in our learning courses and our numerous articles. A company’s intrinsic valuation (IV) is of utmost importance. Current valuations must always be taken into consideration.
Never rush the purchase of a stock, and never overpay for any company.
2. Don’t put all your eggs in one basket
The second place on our list of the top 10 clever investment hacks goes to asset exposure.
Many investors lose track of how far they have sailed out into the ocean when they are caught up in a thoughtless frenzy brought on by investing. This occurs when they fail to account for their exposure to various asset classes.
From the perspective of risk exposure, investing all of your available money in stocks in the hopes of seeing quick returns could be a bad move. Similar to the last example, investing heavily in debt instruments to provide increased capital safety would be a clear return-limiting tactic.
This also holds true for portfolios within the portfolios.
For instance, a portfolio of two stocks would be riskier than one of 10 stocks, and buying only one type of bond would not permanently maximize your debt returns. Always keep in mind to diversify your capital exposure in a meaningful way when implementing this technique.
Never undervalue the power of diversification, and stay away from extreme exposure in search of immediate pleasures or extra capital security. Read this suggested article if you think your asset allocation has become out of control.
3. Volunteer for the Voluntary Provident Fund
On our list of the top 10 clever investment hacks, the Voluntary Provident fund comes in at number three.
Did you know that some laws were developed deliberately to give you benefits and boost your profits? One of these havens is the Employee Provided Fund or EPF. The Voluntary Provident Fund, sometimes known as VPF, is a supplementary component of EPF.
You must do this if you make a wage that falls under a high tax rate.
These are the employee contributions made above the minimum amount required by the Employees’ Provident Fund Organization (EPFO). By the regulations, your VPF contribution must be greater than the standard 12 percent deduction that is made from your pay in each pay period.
However, in rare circumstances, the maximum contribution may reach 100 percent of the basic pay + dearness allowance. Employers are not required to make contributions to their employees’ voluntary provident fund portfolios, in contrast to the EPF Scheme.
An employee is not required to contribute to this plan either. The choice to contribute to a voluntary provident fund cannot be changed or canceled before the base tenure of five years has passed, which is an important point to remember.
At the beginning of each fiscal year, the Government of India determines the interest rate for these schemes, which is now at 8.5 percent (FY21).
Keep in mind that the majority of available debt instruments can’t provide a 100 percent capital guarantee while still generating a consistent return of this kind.
To improve the odds, the 2021 Budget announced that interest in Employees Provident Fund (EPF) and Voluntary Provident Fund (VPF) contributions of up to ₹2.5 lakh in a financial year will not be taxable to increase participation.
Even though it may not seem like the best tool from the shed, you can deliberately save a sizeable sum of money for your retirement fund if you have a highly taxable income despite having used every tax-saving strategy available.
This will come at the cost of a little less take-home salary of course.
4. Harvest LTCG Like a Boss
On our list of the top 10 clever investment hacks, the consideration of long-term capital gains comes in at number four. Taxes on long-term capital gains, also known as LTCG, are reportedly the biggest depressant for equities investors.
Do not forget that the government’s ability to carry out civil operations is made possible by the taxes we pay. In other words, without taxes, it would be impossible for the government to run the country. It’s a win-win situation especially when the country’s growth gets interpreted into the grand scheme of GDP and then the market returns.
‘Long-term’ and ‘Short-term’ are defined by the Income Tax Act, 1961.
While a holding period of one year is considered ‘Long-term’ for Equities, the same is two years for Real Estate and three years for Debt instruments or Debt mutual funds. LTCG on equity returns is exempt for (only) up to ₹1 lakh per annum.
Meaning if you book profits worth ₹1.5 lakh in a given financial year, you will be liable to pay tax only on ₹50,000, and the rest of ₹1 lakh profit is tax-exempt. Isn’t that nice?
The idea of tax harvesting can be used to obtain this benefit and selling and buying the same security through the changeover of a financial calendar is known as tax harvesting. In order to reap the full rewards of long-term compounding, it is crucial to reinvest the earnings back into your financial portfolio.
For instance, if you book a gain of ₹1 lakh on an ₹5 lakh capital investment at the end of the financial cycle, you will have ₹6 lakh in tax-free capital to further compound your gains. This way, you can lawfully keep expelling ₹1 lakh annually from the tax radar in each financial year.
This hack effectively lowers the long-term tax obligation on your whole portfolio if you have a solid understanding of the equity instruments (such as stocks, ETFs, mutual funds, etc.) in which you are investing.
5. Set Your Losses-Off
The fifth place on our list of the top 10 clever investment hacks is taken by setting off losses. You still have a bright spot to look up to if you erred in judgment and are now forced to sell stocks or a mutual fund investment at a loss.
It may sound painful, but in the logical world of investing, making mistakes is OK as long as they don’t financially destroy you. You can offset any losses from selling shares, stocks, or mutual fund units against any long-term capital gains if you do so.
Keep in mind that only long-term capital gains can offset long-term capital losses. Conversely, both long-term and short-term capital gains can be offset by short-term capital losses. (Read again). Subsequently, immediately following the assessment year in which the loss was initially computed, you are permitted to carry over the amount of the loss for 8 assessment years if it cannot be fully offset in one financial year.
You may still carry forward capital losses for eight years if they were caused by stock in a company or other equity that is no longer in operation (such as DHFL).
6. Keep Your Liquid Accounts Well Funded
The sixth place on our list of the top 10 clever investment hacks goes to liquidity.
Maintain a reserve in liquid assets at all times. This ensures that you are prepared to take advantage of financial possibilities as they arise. The ability to capitalize on lucrative chances when they arise is a trait shared by all successful investors.
Yet doing so requires spending a lot of cash to take advantage of unforeseen opportunities. Since your only goal here is to speed up the response time when a need arises, these liquid assets should always be held apart from your emergency fund.
For instance, it’s a good idea to invest in long-term opportunities during market dips, periodic mass frenzies, budget releases, changes to government policy, or investor-friendly wide market scares. If you hurriedly emphasize making financial arrangements over taking action, there is a strong likelihood that you may miss a chance.
Better have some extra cash on hand at all times to be ready.
Opportunity costs with parked money are reduced returns that you could experience when retaining liquid assets during standoff situations. Likely, a few strategically planned investment moves will more than make up for your patience.
7. Never Miss those Healthy Dips
Consideration of dips ranks seventh on our list of the top 10 clever investment hacks because it is crucial.
Never try to time the market, they say! It serves as a caution to those avaricious people who like to bet everything at once.
Market timing during periods of greater volatility can occasionally produce fantastic profits, but only if you don’t stake your entire future on it. What ascends must descend and almost all equities that are trading at a premium eventually revert to their true value (especially the mid-caps).
This is often referred to as the “home run” or “mean reversion.” Find a compelling reason to average down your most promising stock if you discover it is illogically swinging off the fences. Do not forget that not all dips are created equal. To prevent catching a falling knife, conduct a thorough investigation.
This hack can undoubtedly be complimented by hack number six on our list.
8. Accumulate Gold In SIP Mode
This is one of the simplest investment hacks that carry acceptable risk. During peaks, markets tend to become saturated, making it nearly impossible to find those discounted treasures (inexpensive stocks).
Avoid making compulsive purchases during these times if you are not a full-time value hunter.
When the stock market is soaring, gold is a fantastic investment option!
The main relationship between gold and stocks is one of reverse correlation. Because the majority of ultra-wealthy investors prefer to play stocks during the hunting season, you will typically witness slightly subdued returns in Gold during market peaks. By using gold to hedge their portfolios, retail investors can increase their long-term profits. Taking sizeable stakes in investment-grade gold will help you weather the upcoming stock market downturn.
If you don’t want to spend too much time on analysis, a straightforward, slow-moving, high-volume Gold ETF works okay. Investing five to ten percent of your whole portfolio in gold is never a terrible idea, according to seasoned professionals. You can use your gold investment to purchase discounted stocks you’ve been eyeing after equity crashes. You may not be aware of it right now, but this easy trick has taught you how to carry out positional trading.
You’re most welcome!
9. Follow An Investment Discipline
One of the most important factors to increase returns is discipline. No matter how much you invest, you must continue to make staggered, steady investments. Over time, investing is boring, but that’s when patience is put to the real test.
Because markets are unpredictable, it is impossible to time the ultimate peak or bottom. As your investments are staggered through erratic highs and lows, disciplined investing greatly reduces risk. The best you can do to further your efforts is to switch between positions for your “fresh” and “constant” cash infusion between Debt and Equity during obvious Bull and Bear phases.
10. Stay Relevant
Last but not least, maintaining awareness and relevance has advantages of its own; earning it the tenth slot on our list of the top investing hacks. Would you want to invest in a business that is still selling typewriters, sewing machines, or DVDs? Markets shift, products develop, and innovations occur frequently. Therefore, it is your duty as an investor to always ensure that you are relevant.
Your responsibility is to make sure that you study, research, and keep yourself up to date because there will always be that next big product on the market (like electric vehicles or the metaverse). The knowledge and many data points ultimately aid in adding two plus two, which ultimately results in a strong investing consensus.
The best way to do this is to take in and absorb high-quality information and viewpoints from reliable sources, like this blog!
Conclusion
Any investment plan must account for variables including interest rates, economic growth, and stock performance. Retail investors have a very limited number of factors at their disposal that they can control due to the chaos around them.
The best way for normal investors to produce and compound above-average returns over the long run is to scrape together any extra money they can. Although this list may not be comprehensive, we have included a lot of potential components that could have a significant impact on the returns on your investments.
We appreciate you taking the time to read this post all the way through.
Frequently Asked Questions (FAQs)
1. What are clever investment hacks, and how can they benefit me?
Clever investment hacks are strategies or techniques that investors use to maximize their returns and achieve their financial goals more effectively. These hacks involve leveraging specific tactics, such as smart buying strategies, tax optimization, and disciplined investing, to enhance portfolio performance and minimize risks.
2. Why should I consider implementing investment hacks into my financial strategy?
Integrating investment hacks into your financial strategy can provide several benefits, including increased returns, reduced risks, and enhanced portfolio diversification. By utilizing these tactics, you can optimize your investment decisions, capitalize on market opportunities, and navigate market volatility more effectively, ultimately helping you achieve your long-term financial objectives.
3. Are investment hacks legal and ethical?
Yes, investment hacks are fully legal and ethical strategies that investors use to maximize their returns within the framework of existing financial regulations. These tactics involve leveraging available resources, market insights, and financial instruments to optimize investment outcomes while adhering to legal and ethical standards.
4. How can I identify the most effective investment hacks for my financial goals?
Identifying the most effective investment hacks for your financial goals requires careful consideration of your investment objectives, risk tolerance, and time horizon. It’s essential to assess your current financial situation, research different investment strategies, and seek guidance from financial professionals or reputable sources to determine which hacks align best with your needs and objectives.
5. Are investment hacks suitable for all types of investors?
While investment hacks can offer valuable insights and strategies for investors of all levels, it’s essential to consider your financial circumstances, goals, and risk tolerance before implementing these tactics. Some investment hacks may be more suitable for experienced investors with a higher risk tolerance, while others may be more appropriate for novice investors seeking to build a diversified portfolio. It’s crucial to evaluate each hack carefully and tailor your approach to align with your unique investment objectives and preferences.
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