As a new year gets under way, it's a great time to think about how to improve your investing returns in 2013.
With that in mind, it's worth remembering what IBD founder and Chairman William J. O'Neil said at the end of his best-seller, ".
"Success in a free country is simple," he wrote at the book's end in a section titled "One Last Thought.
"Get a job, get an education, and learn to save and invest wisely. Anyone can do it. You can do it.
Note that he calls for both saving and investing wisely. Much of his book and much of IBD's content have to do with picking the right stocks to invest in.
But that's not the whole story. Don't forget that you can boost your gains from investing by just setting aside more money that can work for you.
It's a simple concept, but good to review.
Let's say you manage to set aside a relatively modest $5,000 for investing in one year. Suppose the general market is good but not great for that year, but you personally make some smart stock picks. Say that gives you a net gain of 20% for the year.
To make it more concrete, let's say that 20% gain took place in 2012 and involved four stocks that are familiar to frequent readers of IBD: online marketplace eBay (EBAY), network management software maker SolarWinds (SWI), 3D printers manufacturer Stratasys (SSYS) and Mellanox Technologies (MLNX), an Israeli producer of interconnect products.
These four were just discussed in a recent Investor's Corner series about big winners of 2012.
We'll assume that you didn't capture their entire advances during the year. We'll say you came out with 20% gains with SolarWinds and Stratasys, and 50% gains with eBay and Mellanox.
But you also picked several losers during the year, though in each case you remembered to cut your losses short at 8% — following a key IBD sell rule. Overall, you came out up 20%.
So it's safe to say that a 20% gain is do-able, and with a $5,000 investment, you would be up $1,000 for the year.
But what if you had managed to set aside $10,000? Assuming the same stock picks, you would have finished that year with a gain of $2,000 (i.e. 20% of $10,000).
By saving and putting more toward your investments, you could have doubled your profit. Isn't that enough to motivate you to sock away more
A bigger pile to invest also might have let you take fewer risks. How does that work? Well, perhaps you felt you were picking some riskier stocks to achieve that $1,000 profit from a $5,000 investment. You endured some heartburn in order to come out with a 20% gain.
With a $10,000 investment, you might have been able to pick only steady, big-cap stocks but still have scored a profit of $1,000.
In other words, you could have invested money in calmer issues and only achieved a gain of 10%, but that still would have left you up $1,000 for the year — but possibly with less stress. The Big Cap 20, published every Tuesday, may steer you to some calmer winning plays.
Setting aside more for investing can mean you don't press or strain as much to come out ahead. So consider adding "saving more for investing" to your list of New Year's resolutions.