Six Great Ways to Maximize Investment Returns

Six great ways to maximize investment returns were shared by iconic economic professors who are known as top market forecasters.

The six great ways to maximize investment returns include investing in the stock market for the long run, using dollar-cost averaging and preparing for the unexpected. The six great ways to maximize investment returns have met the demanding standards of statistical analysis from the pair of premier professors.

Research spanning the past 220 years in the stock market shows that investing in equities outperforms bonds, U.S. government T-bills, gold and the U.S. dollar. That analysis comes from University of Pennsylvania Professor Jeremy Siegel, known as the “Wizard of Wharton.” To watch the one-of-a-kind podcast, click here.

Investment and academic icons Burton Malkiel and Jeremy Siegel share top tips.

1. Invest in Equities: Six Great Ways to Maximize Investment Returns 

“In the short run, stocks are the most volatile asset class,” Siegel said. “In the long run, the stock market appears to be bullish, stable and predictable.” 

Siegel’s research received high praise from his fellow podcast speaker Burt Malkiel, an American economist, financial executive and writer of a classic finance book, “A Random Walk Down Wall Street.” Malkiel, also the Chemical Bank Chairman’s Professor Emeritus of Economics at Princeton University, said, “Every time I do a new edition of ‘Random Walk,’ I ask him for the updated numbers. It’s absolutely right. This is the right thing for the long term. This is the asset that people should use in accumulating a retirement fund.”

Stocks Outperform Bonds, T=Bills, Gold and the U.S. Dollar: January 1802-June 2022

Source: Jeremy Siegel

There could be a crisis like bioterrorism or a nuclear holocaust that ends the world, but “overweighting” a portfolio in equities will be the least of the problems if anything like that happens, Malkiel said.

“For an accumulator, the volatility helps one to the extent that one is a regular saver, putting in $100 a month, or a little over $20 a week… one takes advantage of dollar-cost averaging,” Malkiel said. 

2. Use Dollar-cost Averaging: Six Great Ways to Maximize Investment Returns 

Malkiel said that dollar-cost averaging works even in a bear market, like the one that has lasted 30 years in Japan. Investors sometimes can profit in down markets by buying a stock index like the S&P 500 to add to their 401(k) or IRA every paycheck.

“Take advantage of dollar-cost averaging,” Malkiel counseled investors.

The technique of dollar-cost averaging involves investing a fixed sum of money at regular intervals in index funds or other favored investments. When the prices of those assets fall, that same amount of money buys more shares than when the prices had been higher. When the price of those assets rise, the same amount of money buys fewer shares. The strategy provides the most cost-effective use of one’s money by acquiring additional shares when prices drop.

3. Expect the Unexpected: Six Great Ways to Maximize Investment Returns

Alex Green, a seasoned Wall Street investment professional, also participated in the podcast and cautioned that a crisis can occur at unexpected times. No one forecast the market crash of 1987, Saddam Hussein’s invasion of Kuwait in 1990, 9/11, the COVID-19 pandemic or the housing boom and bust, Green said.

Risks that lie ahead include the climate concerns, metastasizing federal debt, high interest rates and debt, as well as geopolitical problems with Russia and China, Green said. 

“What do you say to people who lack the optimism to be a long-term equity holder?” Green asked.

To Siegel’s credit, he predicted the dot.com bust, said Mark Skousen, PhD, who organized and hosted the podcast. Skousen, a Presidential Fellow at Chapman University and leader of the Forecasts & Strategies investment newsletter, also recalled visiting Malkiel in his office in 1999, reviewing a market chart together and agreeing with each other that it was time to sell. The prediction proved to be prescient.

Mark Skousen, a descendant of Benjamin Franklin, meets with Paul Dykewicz.

In January 2000, the market went nowhere, but dollar-cost averaging made an annual return of more than 5%, Malkiel said.

Of course, dollar-cost averaging is not right for people living off retirement funds and needing to the money for living expenses.

4. International Exposure: Six Great Ways to Maximize Investment Returns 

Investors also should diversify their assets by holding some investments in international markets, Malkiel said. Even though Malkiel acknowledged he is mainly a U.S. investor, he personally exercises international diversification.

People can reduce risk by supplementing a U.S. index fund with an index fund of non-U.S. stocks. Nonetheless, equity investing beat bonds in every country, Siegel said.

America practically “worships the innovators and inventors,” Siegel opined. In contrast, Europe is basically a “value continent, and value has not done well,” he added.

Europe does not have the technology giants that have developed in the United States, Siegel said. As a result, investors seeking growth have strong reason to retain significant investments in the U.S. market.

5. Stay Humble: Six Great Ways to Maximize Investment Returns

Be grateful for “what you have,” advised Siegel. Investors also should stay humble, he added.

Siegel said he predicted a 10-15% return in 2023 but expected the best run to occur in the later part of the year, not the first half, as occurred.

“I don’t even know what would retain value if the apocalypse came,” Siegel admitted.

6. Beware of Political Risk: Six Great Ways to Maximize Investment Returns:

Political risk has been on the rise with Russia’s continuing invasion of neighboring Ukraine and China’s contentious interactions with countries in Asia and elsewhere. Sweden cleared a huge hurdle to join NATO with Turkey agreeing to support the bid. That promise cleared the way for all 31 current NATO members to give their consent.

NATO leaders, including U.S. President Joe Biden, held an important meeting on July 12 in Lithuania. The leaders discussed continuing military support for Ukraine and a potential path to admit the country into to the alliance.

Russia’s invasion of neighboring Ukraine in February 2022 has killed thousands of people, forced millions of people to flee from their homes and left many cities in Ukraine’s east and south in ruins. It also has cause economic fallout and hurt normal trade activity of Ukraine and Russia, particularly with their imports and exports.

Russia’s persistent attacks against Ukrainian residential areas give countries like Sweden, Finland and Ukraine further reason to want to become part of NATO to gain additional military clout and serve as a deterrent to escalating foreign threats. Ukraine has launched a counteroffensive to reclaim land that Russia had captured through its invasion that violates international law. But gains on the battlefield have proven to be “slower than desired,” said Ukrainian President Volodymyr Zelensky.

Even though Russia’s forces have dug trenches and hidden land mines to stymie Ukrainian forces seeking to regain land, pressure exists to quicken progress during the summer months before rainy and muddy conditions come in the fall when military progress will be daunting. So far, Ukraine defenders have done little more than test Russian forces with small strikes while seeking to detect weaknesses of its adversary.

The six great ways to maximize investment returns offer avenues to pursue profits in all market conditions. Despite the strong track records for forecasting market moves, both investment icons cautioned that investors should avoid falling victim to hubris when short-term success is attained.

Paul Dykewicz, www.pauldykewicz.com, is an award-winning journalist who has written for Dow Jones, the Wall Street Journal, Investor’s Business Daily, USA Today, the Journal of Commerce, Crain Communications, Seeking Alpha, Guru Focus and other publications and websites. Paul can be followed on Twitter @PaulDykewicz, and is the editor and a columnist at StockInvestor.com and DividendInvestor.com. He also serves as editorial director of Eagle Financial Publications in Washington, D.C. In that role, he edits monthly investment newsletters, time-sensitive trading alerts, free weekly e-letters and other reports. Previously, Paul served as business editor and a columnist at Baltimore’s Daily Record newspaper and as a reporter at the Baltimore Business Journal. Plus, Paul is the author of an inspirational book, “Holy Smokes! Golden Guidance from Notre Dame’s Championship Chaplain,” with a foreword by former national championship-winning football coach Lou Holtz. The uplifting book is endorsed by Joe Montana, Joe Theismann, Ara Parseghian, “Rocket” Ismail, Reggie Brooks, Dick Vitale and many other sports figures. To buy signed and specially dedicated copies, call 202-677-4457.