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While mutual funds are great investment choices, what fool wouldn’t like to get even higher returns? Here are five simple strategies to get your portfolio on the path to higher growth and performance.

 

1.  Dollar-cost averaging

Average out the cost of the mutual fund units you purchase by investing a fixed amount at regular intervals. This strategy ensures that you will purchase more mutual fund units when the price dips, and less when the price rises and consequently results in a lower average unit cost over time.

2.  Check the “reinvest dividends” box

If your mutual fund is within a retirement or tax-sheltered account (e.g. RRSP, IRA, 401K), reinvest any dividends issued by the mutual fund to purchase additional mutual fund units. Yes, this is a no-brainer.

If your mutual fund is in a taxable account, you can still reinvest dividends, except you will need to keep track of dividends received and mutual fund units purchased for tax purposes each year. To avoid this, direct the dividends towards a money market fund and use this cash to purchase the mutual fund - as a separate transaction. Of course, dividend taxes will still be due.

3.  Switch to no-load mutual funds

Seek out funds that have low management fees (MER) so you get to keep more of the returns for yourself (vs. having to share it with the mutual fund company). Index funds do a great job at this, providing diversification as well as extremely low expense ratios.

4.  Think long term

Mutual fund returns can fluctuate extensively, despite your best efforts at careful asset allocation and diversification. This is especially true in the short term (1-3 years). However, holding on to the mutual fund for a longer time horizon smoothes the fluctuations, reducing risk and increasing the potential for higher returns.

5.  Buy low, sell high

An old investment mantra, this is easier said than done. Everyone would like to follow this advice, yet how do you know at the time of buying or selling whether the fund is at its lowest or highest price level? The secret lies in being patient and not getting spooked when the market takes a downturn. Dollar-cost averaging will help to ensure you maintain a low average unit cost and patience (to get to strategy #4) will help you ride out the fluctuations.

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