Regular Portfolio Reviews
Essential for Your Financial Success
Just like a plant in Garden need regular care to flourish,
our portfolio and investments too need periodic review to ensure that they are
growing as planned.
A Review is an effective way to know whether we are on the
right track. Even the best of plans can go awry due to unforeseen and
unavoidable changes in life and circumstances.
Reviewing and rebalancing your investments regularly (at least annually) helps
you spot risks, fine-tune your strategy, and make sure you are on track to
reach your goals.
This habit helps you to capture market upsides, avoid potential losses and create
a sustainable, goal-driven investment journey.
Annual rebalancing helps ensure your investments do not become too concentrated
in one area, and it can keep you from being over exposed to market changes.
WHEN TO DO PORTFOLIO / FINANCIAL REVIEW:
1.
SIGNIFICANT CHANGE IN LIFE SITUATION:
Suppose there is a SALARY HIKE or Promotion. This affects not only your income
positively but also your lifestyle too could see a shift in accordance with the
higher income.
This also means that the original Rs.6 crores that you estimated to be enough
for your retirement could well short of lifestyle requirements ensuring a higher
target.
Even a change in the area where you are living could result in dramatic lifestyle
shift, thus needing a portfolio/financial review.
2.
EXTREME MARKET VOLATILITY:
Extreme market fluctuations may result
in equity losing value bringing down your overall portfolio value. Regular
reviews help portfolio safeguard investments against market movements and keep
risk under control. For instance,
extreme high markets mean equity valuation portion in portfolio might shoot up making
it necessary for you to book profits in equities and move to safer options like
Gold/Debt. This naturally helps in overall portfolio health.
3.
REGULARTORY CHANGES:
Introduction of new guidelines, updates on new features by regulators like
SEBI/AMFI/IRDA could leave a lasting impact on your portfolio. Staying informed
and reviewing your portfolio helps you ensure it remains compliant and aligned
with these regulatory shifts.
4.
PERFORMANCE ANALYSIS:
Fund performance varies, and no fund will be always at the top of table or at
the bottom of table.
Extremely volatile funds needs to be moved out of portfolio and identifying
such funds during review helps in moving to much more stable fund (as needed)
Holding onto poorly performing funds out of habit or hope can hurt your overall
returns. Instead, look for funds that better match your financial goals and
risk tolerance.
5.
TAX EFFICIENCY:
Tax changes are inevitable and unavoidable. These tax changes could
significantly impact portfolio by way of higher tax outgo. Regular review help
in revealing assets / funds which can benefit you from a tax point of view and
help you get more returns.
AVOID
THESE MISTAKES DURING PORTFOLIO REVIEWS:
1. DO NOT CHASE
PERFORMANCE
Before jumping in to invest a BIG amount in the recent No.1 Fund... remember
the biggest disclaimer
PAST PERFORMANCE MAY NOT BE INDICATIVE OF FUTURE RETURNS.
While this disclaimer is valid for every asset class like Gold, Silver, Real
Estate, and Equities...it is more prominent in Mutual Fund performance. Past
Performance is like a rear-view mirror showing only what has been rather than
where you will be going!
Step back a bit and look at the bigger picture and consider a broader
perspective, rather than just the short-term jump.
Remember, investing is a marathon, not a sprint. While it is natural to be attracted
of investing of High Growth fund, it’s prudent to focus on building a portfolio
that is built to last. By prioritizing consistency over short-term gains, you
are taking a significant step towards achieving your long-term financial
objectives.
2. AVOID EMOTIONS
It's natural to
feel worried when the stock market takes a downturn. However, reacting
impulsively by selling your investments can be a costly mistake. For instance,
during the 2020 market crash, many investors panicked and sold their equity
mutual funds. Those who stayed invested, however, reaped the rewards of the
subsequent market recovery.
Stick to your long-term financial plan & focused on your
goals, you can weather market volatility and achieve your financial
aspirations.
CONCLUSION:
Regular portfolio reviews are your way of “weeding and
watering” your financial garden, ensuring it stays healthy and growing toward
your goals.
With these examples in mind, make a habit of reviewing and rebalancing your
investments—it’s the difference between hoping for a bright financial future
and actively building one.
Make your roots strong.
Ensure that you have a Super Strong Portfolio capable of weathering all storms
and having sufficient exposure to all types of asset classes with the
right percentages and allocation. If the roots are strong, the need to act
seldom arises.
But, do note, regular Portfolio review and monitoring is a definite YES.
Portfolio
Reviews are necessary, but changes are not!!
Regards,
Srikanth Matrubai
You are strongly encouraged to consult your financial planner before taking any decision regarding this investment. The views expressed here is the authors personal views and should not be intrepresented as a recommendation to invest/avoid.
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