How to increase your returns
How to calculate real returns
To calculate a real return on the amount invested, subtract the inflation rate and tax you'll pay on any interest earned, from the interest you are quoted.
Real return = Return - Inflation - Tax
How much return can you earn?
It's unfortunately quite easy for your investment to fail to beat the breakthrough point (interest rate at which you will start to receive a real rate of return on your money), as there are a lot of investment products that offer lower rate of returns than the breakthrough point.
As an investor you are not only looking to equal the breakthrough point, you should aim to obtain a little more than the breakthrough point as a reward for not spending money in the first place.
Risk vs return
Risk is part of investing. It is the price you pay for a potential reward. The greater the risk the greater the potential reward should be. Every investor needs to find the level of risk that is comfortable while still offering the potential of return necessary to achieve financial goals.
The fundamental rule is: The higher one's risk, the greater the expectation of receiving a high return. The opposite is also true however: the higher the risk, the greater the chance that that the return will be zero or negative.
Learn about diversification
Diversification is one of the main principles of building any investment plan. Everybody's heard the saying 'don't put all your eggs in one basket'. This is exactly the same as the principle of diversification, which means spreading out your investments between different asset classes and over sectors within the asset classes in order to minimise risk.