Level Up Your Investing Strategy: 7 Smart Ways To Transform Your Approach

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Wondering how to level up your investment strategy with a more strategic, hands-on approach? 

You don’t have to be a baby Buffett to maximize your returns. While diversification is the gold standard for beginners—and typically the first strategy that most investors master—it’s the tip of the investing iceberg. Here, we’ll review seven key advanced portfolio methods that you can confidently master with time and practice.

7 Key Advanced Portfolio Strategies To Incorporate

1. Optimize For Risk and Return  

Risk is inherent in investing. Investments with the highest risk also provide the highest potential reward. Understanding your risk tolerance and the nuances of optimizing risk and reward is a more advanced strategy that can help investors maximize returns. 

You can’t balance risk and reward effectively without understanding your personal risk tolerance as determined by your timeline, income, comfort, and goals.

Once you determine your personal risk tolerance, how do you use that information to level up your investing? Some strategies to optimize risk versus return include:

• Portfolio rebalancing: What is in alignment with your current risk tolerance today may be misaligned due to asset growth tomorrow. Periodic portfolio rebalancing is a way to assess performance and detect problems before they start. 
• Incorporating risk management strategies: The most basic risk management strategy is diversification. Beyond that, consider asset allocation, in which your portfolio is spread across different asset classes such as stocks, bonds, cash, and alternative investments. Or, embrace dollar-cost averaging, in which you invest the same amount in a given investment on a regular basis, e.g., monthly. 
• Staying informed: Investors who want to optimize returns with risk vs reward management should stay up-to-date on economic and market trends. Market watching is another investment strategy that is wise to outsource to a trusted financial advisor. 

2. Take an Asset-Specific Approach

In asset-specific investing, you invest in specific asset classes to leverage the potential returns of the particular asset to reach your goals. 

Asset-specific investing requires an in-depth understanding of a specific asset class and using that knowledge to make better-informed decisions and maximize returns. This strategy may include investment transactions based on market timing, market trends, interest rate fluctuations, location, and price.  Some assets you may use in asset-specific investing include: 

Stocks: Stocks offer growth potential, as well as income from dividends. To determine a stock’s profitability, weigh its past performance against its potential. 

Bonds: Bonds provide predictable income and allow investors to counter any stock market fluctuations in their portfolios. Before investing in bonds, you should consider interest rate trends, market indicators, and credit quality. 

Real estate: Real estate generates income in a few ways. Investors may see profits through rental income, appreciation of assets, and profits generated by any business activity at the property. To invest in real estate, you must use data about location, market trends, and rental or business income potential. 

Commodities: Commodities offer a hedge against inflation. Each commodity, like metals, crude oil, and even frozen orange juice, comes with a unique risk and reward criteria subset. 

3. Increase Tax Efficiency 

Investing with tax efficiency and legal guidelines in mind allows you to minimize the taxes you pay, leaving you with more money to grow and reach your goals. 

There are a few main categories of tax-advantaged investments for investing: retirement/education accounts, health savings accounts, and municipal bonds.  

Retirement accounts: Offer investors tax deductions today or tax-free growth and withdrawals in the future. Traditional IRAs and many employer-sponsored plans allow investors to deduct any contributions from their earned income in the year of the contribution. Roth IRAs and Roth employer-sponsored plans use after-tax dollars for the contribution, but they grow tax-free and allow for tax-free withdrawals provided the investor waits until 59 1/2 or uses the money for other qualified expenses. 

“Roths are the easiest and the most accessible retirement account,” said Overweg.  “You can start that account for virtually free on almost any platform out there and immediately get money growing tax-free. And, there is nothing better than tax-free.”  

Unfortunately, not everyone qualifies for a Roth IRA due to income limitations, so investors should refer to the most recent IRS regulations or consult a financial advisor before investing. 

Health savings accounts:  Health savings accounts are basically pre-tax savings accounts for qualified health expenses. HSAs also allow your savings to grow tax-free, and withdrawals are without tax. These accounts are only available to those who have a high deductible health plan (HDHP). Those who do have access to an HSA can strategize with an advisor to make the most of their triple tax advantages and even use the HSA as a sort of retirement plan for later. 

Municipal bonds: These bonds are essentially loans to a municipality or local government to fund projects like bridges, roads, or other building projects with a promise that the government will repay the loan upon maturity plus interest. The interest payments are exempt from federal taxation. Additionally, if you live in the state where the bond is issued, it may also be exempt from state and local taxes. 

You may be wondering why not put all of your investments in tax-advantaged accounts to really cut down on taxes owed, but due to increased regulations and limitations, more is not always more when it comes to these strategies.

4. Explore Tax-Loss Harvesting and Asset Location

Other tax optimization strategies investors may employ are tax-loss harvesting and asset location. 

Tax-loss harvesting: Investors offset capital gains income by selling other investments at a loss. These transactions are dual purpose by reducing taxable income and maintaining portfolio balance. 

Asset location: Most investors, especially those working with a financial advisor, will have more than one type of account in their portfolio. One strategy to maximize returns is to put tax-inefficient investments in tax-advantaged accounts and tax-efficient investments in taxable accounts. As an example: you don’t need a municipal bond in your Roth account.

5. Break Down Behavioral Biases 

Sometimes, the biggest enemy of investing success is not the markets but the investors’ behavior. 

Behavioral finance is the economic theory that examines investors’ psychological influences and biases and their impact on their personal portfolios and the market as a whole. We come to every relationship in our lives with biases and past experiences that influence our future actions; our relationship with money is no different. Understanding common behaviors and biases is the first step in avoiding making the same mistakes as so many investors and maximizing the returns that get you closer to your goals. 

Some of the most common biases and reactions that investors share are: 

Confirmation bias: When investors tend only to accept information about investments they already think are true; this is confirmation bias. 

Familiarity bias: Familiarity bias is particularly limiting because it limits investors to investments they already know. This bias leads to underdiversified portfolios and missed opportunities. Consulting a financial advisor to explain things is prudent to combat familiarity bias. 

Loss aversion: As the name suggests, this is a bias where avoiding loss is more important to you than acquiring gains. Sitting in this discomfort may cause you to misalign your portfolio with your risk tolerance and, therefore, not maximize returns. 

Herd mentality: Just because everyone else is doing it does not make it right. Herd mentality is especially present in the stock market and is usually the cause of dramatic rallies and sell-offs. 

Recognizing and addressing these biases and psychological reactions in investing will help you maximize your returns and level up. 

6. Leverage Advanced Analytics & Technology

In an age where most of us carry the internet around with us all the time,  our access to information is greater than ever. Knowledge can be power. However, the quality of that information matters. Technology can make it easier than ever for investors to access high-quality insight into their portfolios. 

Robo-Advisors

Robo-advisors are algorithm-driven digital platforms that provide investment services. Robo-advisors are generally cheaper than financial advisors. Employing a vetted robo advisor like Betterment or Wealthfront is one way of taking a more involved and elevated approach to your investments with a lower minimum investment amount and lower fees while still benefitting from periodic reviews and rebalancing. 

Portfolio Management Software

Investors hoping to manage their portfolios independently of robot or human advisors can use portfolio management software to track their investment portfolio, asset allocation, and performance, and alert you to any opportunities in line with your investment strategy. An approach like this requires active monitoring and discipline. 

AI Investing Tools

Some robo-advisors and portfolio management platforms use artificial intelligence (AI), but they’re far from the only investing tools leveraging this technology. AI-powered stock screeners, for example, filter stocks and perform technical analysis. 

Even everyday large language models (LLMs) like ChatGPT and Gemini can have their place in investing research. You can use these tools to help you summarize financial statements and boil down complex financial concepts. 

The Bottom Line

After you build a solid investment foundation with a diversified portfolio, maximizing returns and leveling up your investments require a strategic and focused approach. Advanced portfolio methods to incorporate into your investment strategy include optimizing your risk-reward balance, leveraging asset-specific strategies, minimizing tax liabilities, and addressing psychological biases that may prevent you from peak growth.

While tools like robo-advisors or portfolio management software help you stay educated about the market and your portfolio, many investors find that consulting a financial advisor allows them to make money moves to maximize profits with their expertise.