3 Strategies For Beating The Market

These three strategies could boost your long-term returns.

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.

History shows that over long periods of time shares have provided investors with higher returns than any other asset class. Cash, property, bonds — you name it, shares have beaten it.

Of course, shares can be volatile. But if you look at a 100-year chart for the UK stock market, dips and crashes barely register on the long upward trajectory. You can invest in funds that simply track the returns (less charges) of the UK’s FTSE All-Share Index, or international markets, such as the FTSE All-World Index or MSCI World Index.

Invest regularly in a tracker, through all the ups and downs, and if you start early and live below your means, your wealth in later life should be significantly enhanced, even from relatively modest regular investment.

However, depending on your level of interest, and the amount of time, effort and learning you’re willing to put in, you might hope to earn superior returns than a simple tracker. Here are three strategies that could help boost your returns.

Investment trusts

Investment trusts have been called the City’s best-kept secret. They have their origins in the 19th century and their shares trade on the stock market. They invest in other companies, having been created to provide investors with a cheap way to own a diversified portfolio, long before the days of indexes and trackers.

A good number of the original, prudently-managed Victorian trusts are still around. For a UK focus, you could consider a trust such as City of London (founded 1891); for wider international exposure, a trust such as Foreign & Colonial (founded 1868).

Investment trusts often borrow a relatively small amount of money in addition to their shareholders’ funds. These modest borrowings ‘gear’ the returns on the investment. If markets continue their long-term rise, as they have in the past, gearing should help these trusts to continue delivering somewhat better returns than a plain tracker. You’ll need to put in a little effort to understand investment trusts in order to be able to make an informed choice.

Market tailwinds

Many investors prefer to choose individual companies, for all kinds of reasons. Holding a diverse portfolio of hand-picked blue-chip stocks from the FTSE 100 is a popular strategy, although not one that will necessarily do better than an index tracker.

Some companies benefit quite directly from the health of the stock market. Again, on the basis that markets rise over the long term, it could make sense to hold a smattering of businesses that enjoy this tailwind within a diversified portfolio. Examples include asset manager Schroders, broker Hargreaves Lansdown and London Stock Exchange itself. With decent management, these sorts of companies should outperform the market over the long term.

Mid-sized and smaller companies

Mid-sized and smaller companies are generally higher risk and more volatile than the established heavyweights of the FTSE 100. However, they have more scope for growth and can deliver super long-term returns, although many — particularly among the smallest — also fail completely.

A FTSE 250 tracker gives you the return of the 250 mid-sized companies below the FTSE 100, and is a relatively low-risk way to gain more exposure to ‘growthier’ stocks than you get from an All-Share tracker, which is heavily weighted towards the larger companies.

Picking individual shares, especially from below the FTSE 250 isn’t a strategy for inexperienced or faint-hearted investors. But, if you have the interest and acquire the skills to analyse companies in detail, the potential rewards can be worth the effort.

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.

G A Chester has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended Apple. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

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 »