3 Ways to Maximise Your Stock Returns
In my years of investing, I have realised that investors often gloss over some important considerations of their investments that may be eating into their returns. In this article, I want to highlight three simple, but often overlooked steps that investors can take to maximise their returns.
Find the most cost-effective broker
When I first started investing, I was more focused on which stocks I wanted to buy rather than choosing the broker that was most cost-effective for my portfolio. I ended up with a broker that was recommended to me by my friend, but the broker was not the most cost optimal for me.
In foresight, if I had chosen a more cost-effective broker, I could have saved hundreds of dollars each year. Together with the compounding effect of investing, the savings could have added up.
Don’t forget that tax can eat into your returns
Singapore investors who invest in Singapore shares have a big advantage over their foreign counterparts. We do not need to pay capital gains tax or even tax on the dividends earned.
However, when we invest in foreign shares, we have to abide by the tax laws pertaining to the countries in which the companies are listed. For example, investors need to pay a 30% tax on their dividends when investing in shares listed in the United States.
Tax can have a major impact on our returns. It is, therefore, useful that we take into account any tax that we may need to pay when choosing a stock to invest in. Ideally, we should try to invest in stocks that we do not need to pay tax for.
Save on foreign exchange expenses
When dealing with foreign stocks, investors often overlook the cost of foreign exchange. Banks charge a commission for each transaction we make. To save costs, investors should find the bank that has the best exchange rate.
It is also useful to take any foreign currency fluctuations into account when calculating our returns. A devaluation of the currency that the stock trades in against the Singapore dollar will have a negative impact on our returns.
As a rule of thumb, I try not to invest in shares in a country that has an unstable currency. Even if the stock you have invested in provides good returns, the devaluation of the currency will certainly eat into your profits.
The Foolish bottom line
Investors are often only focused on which stocks they want to invest in. They may overlook other important factors that may eat into their returns. Hopefully, this article has shed some light on some expenses that we, as investors, can save on.