The secret to improving your portfolio returns

Here’s how you could generate improved capital growth in the long run without making drastic changes to your investment strategy.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

For many investors, finding the right investment strategy is not an easy task. Inevitably, some styles work better than others depending on market conditions. Therefore, adopting a value-orientated style or a growth strategy, for example, may not always be the most effective means of beating the index over a specific time period.

However, rather than constantly change investment strategies depending on market conditions, investors may wish to adopt one simple approach that could work well under a variety of scenarios.

Market noise

At any given time, there is a significant amount of market ‘noise’ surrounding stocks and their movements. Market noise is perhaps best defined as short-term price movements, trending news and even word of mouth. It can lead many investors to make snap decisions regarding their portfolios – even if it goes against their overall strategy.

For example, during a major bear market such as the financial crisis, many investors decided to sell their holdings due to market noise. There were various news stories around at the time which claimed that the world faced financial Armageddon. While it was a severe recession, ultimately global stock markets have since recovered, and investors who sold out of their positions at the time have missed out on the subsequent gains which have been available.

Likewise, during bull markets such as the dot.com bubble, many investors left behind their sensible value investing strategies and instead focused on growth. While growth investing in itself can be a successful strategy to pursue, obtaining the right price for an investment remains crucial. With stocks valued on high multiples of future sales during the dot.com bubble, excitement and rising stock prices caught many investors out.

Mental strength

Clearly, market noise can have a major impact on an investor’s decision making. It can cause emotion to rule a rational thought process and if it does, it may mean that the wrong decisions are made.

As a result, ignoring market noise could be a simple and yet highly effective means of improving an investor’s portfolio returns. Doing so could leave an individual with the ability to rely on facts and figures, as well as their own logic and judgement, when deciding how to apportion their capital. In the long run, this is likely to mean higher returns, since it could allow an investor to capitalise on mispricing opportunities during bullish and bearish periods alike.

Of course, ignoring market noise is easier said than done. After all, most investors read newspapers, watch the news and keep up to speed with developments regarding their holdings. As such, hearing some market noise is almost inevitable.

However, one method of ignoring market noise which could be a pragmatic solution is to rely only on ‘trusted sources’. In other words, have a shortlist of well-known investors, news sources and industry leaders who have solid track records in their respective fields. While they may not always be correct, they may allow an investor to focus on facts and informed opinions, rather than considering more general information which, in the long run, may prove to be detrimental to their financial outlook.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

More on Investing Articles

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »