One of the basic assumptions about investing is that if you want higher returns, you need to take on more risk.
The assumption is not always true. In the effort to weigh risk with reward some simple money-saving practices are often overlooked. Here are three perfectly safe ways to increase returns:
Pay down debt: Debt isn’t normally considered an investment but when you look at it in a different way it’s one of the best investment most people can make. When you pay down debt, your return is equal to the amount of interest you are being charged. A balance owing on a credit card, for example, is about 18 per cent. If you can find an 18 per cent, risk-free, return on anything else it’s probably a scam. Oh – and it’s tax free.
Lower fees: Annual fees on some funds are as high as four per cent. As a portfolio grows those fees can translate into tens of thousands of dollars a year. Shop around for lower-cost alternatives such as flat-fee managers. If you feel you have the know-how, go it alone through a discount brokerage or exchange traded funds (ETFs).
Tax savings: Tax expert Lorn Kutner from Deloitte says a good tax strategy, implemented through an investor’s lifetime, can boost returns by 25 per cent. That strategy involves the proper mix of registered retirement savings plan (RRSP) and tax free savings account (TFSA) contributions.
One thought: if you can save two per cent each year through each of the three return boosters, you will earn an extra six per cent. That’s six per cent that can grow over time and blossom into a really big chunk of cash.