(Money magazine) -- Making real money today is a challenge, whether you're just starting out or already have a strong financial foundation.
This is part of a special report on 101+ ways to build wealth. In this story, readers and experts weigh in with advice for significantly improving the return on your investments.
Shop for discounts. Value investing (buying beaten-down stocks that are poised to rebound) tends to outperform growth investing (buying firms with rapidly increasing earnings).
From 1928 to 2011, U.S. large value stocks delivered 10.8% average annual returns, vs. 8.7% for their growth counterparts. This strategy requires guts and patience.
"You're taking the other side of trades made when people can't wait to get out," says Wally Weitz, manager of Weitz Partners Value ().
And there are long stretches where the category lags, like the past 10 years. Feeling brave? See three stocks Weitz likes.
Buffer against losses. Covered calls can boost long-term returns up to 20%, University of Utah finance professor Robert Dubil found. You sell an investor the right to buy a stock or an ETF you own should the shares rise above a set price within a set time. The cash you pocket cushions losses if the stock falls. But if it never hits the strike price, you keep the money and the shares.
Be a cheapskate. The surest way to improve returns? Minimize investing expenses.
Index funds and ETFs are a good way to go: Vanguard Total Stock Market () charges just 0.17% vs. 1.4% for the typical actively managed stock fund.
Growth of $100,000 after 20 years, with 7% annual returns:
Go abroad for stocks. Despite the widespread slowdown, the economies of many countries are likely to outpace the U.S over the long run.
"For those who can stand the bumps, emerging markets are likely to grow faster than developed markets; and Europe, now selling at a 30% discount, will eventually come back," says RegentAtlantic investment adviser Chris Cordaro.
... And do the same for bonds. The average yield for emerging-market bond funds is 5.4%, more than triple the current yield on a 10-year Treasury note.
Sound risky? Many emerging-market economies are in better shape than the U.S. and Europe; emerging markets also have better growth outlooks.
Shift 5% to 10% of your bond portfolio toward them through T. Rowe Price Emerging Market Bond Fund (), which has a 6.4% current yield, suggests Jeff Layman, chief investment officer of BKD Advisers.
A Money magazine reader weighs in: Go with what you know.
"I buy stocks only in companies whose business I can easily understand. This served me well with Electronic Arts (I'm a gamer), Crocs (wear them all the time), and several railroad companies (I think fuel prices will make rail transport more popular)." -- Kevin Banks, Dunwoody, Ga.
Become a landlord. It's now cheaper to buy homes than rent in 98 of the top 100 metro areas, Trulia.com reports.
"And the outlook is that we're more likely to see appreciation in the next one to five years," says Frank Nothaft of Freddie Mac. Plus, you can see returns of 5% to 10% from rent over a five- to 10-year hold, says Robert Griswold, co-author of "Real Estate Investing for Dummies"
Favor dividend growers. Most income investors today are focused on current yield.
A better metric? Dividend growth. Companies that consistently raise payouts outperformed those that don't by 1.4 percentage points a year over the past five years, Ned Davis Research found.
Get growth through SPDR S&P Dividend ETF (), which tracks stocks that hiked yields every year of the past 25.
Get a hunk o' junk. Total bond market indexes don't include high-yield bonds, which are less sensitive to rising interest rates than other debt.
Junk bonds are also delivering 7.8% yields right now, 6.5 percentage points higher than a 10-year Treasury.
Investment adviser Jeff Layman suggests putting 10% of your bond allocation into them via Artio Global High Income (), which is yielding 7.5%.
Hedge inflation. Keeping too much in cash could leave you behind consumer-price increases, particularly with interest rates on savings at 0.13%.
I-bonds can protect you. Rates adjust twice a year based on the CPI. "And you're guaranteed to at least match inflation," says Boston University econ professor Zvi Bodie. The current rate is 2.2%. You can invest up to $10,000 a year via TreasuryDirect.gov.
Cherry-pick big growers. The core of your portfolio should be stashed in funds that give you access to all areas of the market.
The typical way to go for more growth is to invest in the stocks of smaller companies, but those look overpriced today, says GMO chief investment strategist Jeremy Grantham.
Big blue chips, on other hand, look like decent values. Here are four favorites from Larry Puglia, manager of T. Rowe Price Blue Chip Growth (7 stocks to rev up your portfolio)), that are expected to increase their earnings at a decent clip. (See
Be passively aggressive. As the graph above shows, few actively managed funds consistently beat their benchmarks. That means for a diversified portfolio, you'd to have to pick right a bunch of times. Good luck with that. Instead, put the bulk of your money in index funds and ETFs from the MONEY 70 that cover the market, then invest the rest in managers you think have the goods.
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