3 simple ways I’m boosting my stock market returns in 2021 and beyond

Picking great companies is one way of generating solid stock market returns, but Paul Summers thinks avoiding unnecessary costs is just as important.

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.

Learning to distinguish winning from merely average stocks (and snapping up the former) will likely lead someone to obtain great wealth over time. That said, it’s not the only way of increasing investing performance. In fact, I think avoiding unnecessary costs is just as vital to boosting my eventual stock market returns. Here’s how I’m attempting to do just that.

Avoiding the tax grab

Holding my investments within a Stocks and Shares ISA or Self-Invested Personal Pension (SIPP) is a no-brainer for long-term investors like me. Doing so ensures I won’t pay any tax on the profits I make or any dividends I receive. While returns are far from guaranteed, the more money I retain, the more I can benefit from compound interest. All other things being equal, this should see me achieve far better returns. 

Whether an ISA or SIPP is most appropriate will differ from person to person, of course. Any money held within an ISA can be accessed immediately. A SIPP, as one might have guessed, is geared towards saving for retirement. The fees for running each account can also differ substantially.

Speaking of which…

Limiting broker costs

Another way of boosting returns, at least in theory, is to minimise the commission costs I pay for buying or selling shares. A quick online search reveals that these can vary wildly between UK brokers. One charges as much as £11.95 per trade. Another charges £7.99 per trade. Sure, there are other things beyond costs to consider when selecting who to place trades with. But this doesn’t negate the fact that this difference in costs will add up over time.

However, I go one step further. Since timing the market consistently is so fiendishly difficult, I don’t even try. Instead, I automate the vast majority of my buying so that deals go through on the same day every month via my broker’s regular investment scheme.

In addition to taking emotion out of the equation, this strategy is also a far cheaper way of buying shares. One of my brokers charges just £1.50 per transaction. Another doesn’t charge any commission at all! This will save me potentially hundreds of pounds over an investing lifetime.

Sure, reducing the amount of commission I pay doesn’t guarantee stock market success. Nevertheless, it does increase the probability that my returns will be better.

Value for money

A final way I’m attempting to boost my performance is by checking that any funds I own represent the best value for money. This involves looking at the ongoing fees charged by the manager. 

Naturally, the cost of owning a specific fund needs to be balanced with the return it’s likely to generate. A FTSE 100 tracker may be cheap to run (and involve less risk) but its returns over decades may be less than one that focuses on, say, quality UK small-cap stocks. The point here is to compare like with like.

Nevertheless, if the differences between an active and passive fund are minimal in terms of stocks held, I’d be very likely to opt for the latter due to the cost-saving I can make. Again, this could have a substantial impact on my eventual returns from the stock market.

Look after the pennies and the pounds will look after themselves – that’s the Foolish way.

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.

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

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

Could the 9.8% M&G dividend yield get even bigger?

Christopher Ruane reckons that, although the M&G dividend yield is already close to a double-digit percentage, it could get better…

Read more »

Investing Articles

How much passive income could I earn by putting £380 a month into a Stocks and Shares ISA?

Christopher Ruane explains how he'd aim to turn a Stocks and Shares ISA into four-figure passive income streams each year.

Read more »

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

2 passive income stocks I’m buying before an interest rate cut

With the market expecting interest rates to fall in August, time might be running out for investors looking to buy…

Read more »

Investing Articles

If I’d bought Rolls-Royce shares a year ago, here’s what I’d have now

Rolls-Royce shares have been the big FTSE 100 success story of the past 12 months and more. And there's still…

Read more »

Young female analyst working at her desk in the office
Investing Articles

If the Dow’s heading for 60,000 by 2030, can the FTSE 100 index hit 12,000?

Strategist Ed Yardeni predicts a 50% rise for America’s Dow Jones Industrial Average over six years. Can the FTSE 100…

Read more »

Investing Articles

Is the National Grid share price a once-in-a-decade opportunity?

The National Grid share price looks like a bargain. But there’s much more for investors to think about than a…

Read more »

Investing Articles

Here’s why the Rolls-Royce share price should keep gaining!

The Rolls-Royce share price is up 185% over the past 12 months, but there are a host of tailwinds that…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

Buying 1,852 shares in this ultra-high yield FTSE 100 income stock would give me £1k a year

Harvey Jones is keen to load up on this blue-chip income stock that pays the highest yield on the FTSE…

Read more »