Boosting your annual returns by a mere 1% over a 30-year period could escalate your total returns by almost 32%. Surprisingly, a 2% enhancement could result in a 72% increase. The enormous power of compounding plays a major role in these small, annual improvements.
Regardless of whether your ultimate goal targets income generation or long-term growth, there are three effective strategies you can employ to enhance your returns. Unfortunately, many investors overlook these mechanisms, thereby missing out on potential gains.
So, how can you specifically capitalize on these techniques using the stocks you already own?
Here are three ways to generate income from your existing stocks:
1. Monetizing Your Shareholder Votes:
As a shareholder, you have the privilege to vote during the company’s annual general meetings. However, with over 72% of retail investors typically acting as passive shareholders, they fail to exercise their shareholder voting rights.
If you are among these passive investors, selling your shareholder votes can be a beneficial strategy. Instead of letting these precious assets waste away, you can monetize your votes through platforms like Shareholder Vote Exchange.
Generally, shareholder votes hold a value of 1-5% of the share price. Therefore, if a share is worth $100, its votes may be tradable for $1-$5. Consequently, someone who invests $10,000 can potentially generate an annual income of $100-$500, subject to the companies they’ve invested in.
When the company’s market positioning is weak compared to its peers, these votes often carry higher value. Shareholders can leverage these opportunities to take control and drive positive changes in the company. Unlocking value and increasing market capitalization are the subsequent results that are often achieved when the company optimizes its operational efficiencies, penetrates into emerging markets or ameliorates its financing structure.
While the 1-5% increase might seem minor initially, over the course of time, thanks to compounding, the portfolio growth can be significant, especially when the proceeds from these votes are reinvested.
2. Selling Options:
Selling call options is another way to generate income from your stocks. This strategy involves selling a call option for each block of 100 shares you own, forming a “covered call” position.
In this case, you predict that the stock price will not exceed a specific threshold, known as the strike price, within a specified timeframe. If it drops, you stand to make money from the sale of this call option.
The risk with this strategy lies in the possible scenario where the stock price rises above your strike price. However, as a “covered call”, any losses from the short call would be compensated by gains in the stock itself.
Even with some limitations, like capping your potential gain if the stock price significantly surges, this strategy offers stability and a higher chance of profit. Therefore, this approach is ideally suitable if you predict moderate gains for a particular stock.
However, unlike voting rights sales, this strategy may not be optimal in a bull market. You can delve deeper into the performance of covered call strategies on the CBOE’s website.
3. Lending Your Shares:
Capitalizing on share lending programs is another effective method for generating income.
In general, investors use margins to leverage their stocks by going long or short. However, to perform this, they need to lend their shares from other shareholders. Here, your broker can step in and lend your shares to another investor who needs them. The other investor will pay interest for borrowing your shares. This approach is ideal for long-term investors who don’t intend to sell their shares anytime soon.
While this strategy comes with certain risks such as bankruptcy of the lender or inability to return the shares, most stock lending programs offer sufficient cash collateral to mitigate this risk. However, the inconsistency in the demand to borrow shares means this income source may be unreliable.
Alternative ways to optimize your income include investing in dividend stocks, preferred stocks, or corporate bonds.
Preston Yadegar, the Founder and CEO of Shareholder Vote Exchange, shares valuable insights on shareholder activism, corporate governance, and financial analysis on Medium and Substack. Connect with him on social media to learn valuable investing strategies.