In school you learned how to get the highest score on a test: first answer all the questions you know, then go for partial credit on the harder ones. Your family’s portfolio can work the same way, first focusing on the decisions that will have the biggest impact and then searching for ways to enhance your returns on the margin. Here are three ways to streamline your finances so that your money works harder for you.

 

– Choose ETFs

Picking individual stocks is tough; even the pros often can’t select winners. Statistically, investors who try to bet on individual companies rarely beat the market. But many people keep trying to pick individual stocks because they’ve read the fairy tales about others who have built fortunes on one stock. Unfortunately, unless you invest in a company early on and it becomes a stock-market juggernaut, you are unlikely to amass a huge profit from just one holding.

The more conservative way to invest in equities is to buy low-cost, broad-market ETFs and to hold on to them for many years, dollar cost averaging into your position over time. That way, you diversify your risk among a large number of stocks without trying to time the market, while keeping your costs low.

 

– Avoid high fees

Why do fees matter? This is one of the areas where investors have a chance to make a real difference in their results, regardless of how the market performs. Every dollar you spend today paying fees – on your funds, your bank accounts, or your investment adviser’s services – is a dollar that won’t compound in your portfolio over time. The power of compounding is what makes a portfolio grow in a steady, reliable way for most investors. Fees aren’t inherently bad — what matters is the performance of your investments net of fees.  If you have a stock fund or a financial advisor that consistently outperforms the market, it may be worth the extra fees.  The problem is that with equities, it’s difficult to find someone who can consistently outperform the market by a wide margin year in, year out.  If you’re paying 1.0 – 1.5% in fees each year, that can put a real drag on your returns over time.

 

– Earn more on your cash

There will always be some portion of your portfolio that you choose to keep in cash, typically held in your bank account or in money market funds. If that cash on the sidelines isn’t earning as much interest as it could, you’re leaving money on the table. Just like with high fees, earning little interest on your money in the bank puts a drag on your portfolio — money that could otherwise be compounding over time. MaxMyInterest.com offers an investor-friendly system that helps you consistently earn more on your cash by helping take advantage of the higher yields offered by online banks.  Today, these yields are as high as 0.95%, considerably higher than the national savings account average of 0.11% or most money market funds that yield a paltry 0.01%.  By monitoring for changes in interest rates, and automatically helping your money move to the leading FDIC-insured banks offering the highest rates each month, MaxMyInterest can help you earn higher yields on your cash, boosting the returns on this portion of your potfolio.