In this article, we discuss simple tips to review your investment portfolio. Every portfolio requires a personalized benchmark for comparison. Our long-term goals, particularly the money required for these goals, form natural benchmarks for a portfolio review.
First, the basics should be in place before we start investing or immediately after:
Emergency fund
Life Insurance
Health Insurance
Determine the investment necessary for short-term and long-term goals. While short-term goals (< 5 years; < 10 years for newbies!) can be in 100% fixed income. Long-term goals (> 10 years away) would require an asset allocation of 50-60% equity and the rest in fixed income.
Allocate money from your income for both short and long term goals. Typically, the target investment amount would be too high. Just start with whatever you can and see how it goes.
Based on what you can invest, set up an investment schedule each month and then each year. Aim to increase the investment amount by at least 5%, preferably 10% each year.
Once these are in place, you can move on to an advanced step (before or during the first-year portfolio review).
You need to figure out how to reduce equity exposure for long-term goals. For goals other than retirement, this typically means reducing equity to zero. For retirement, if the corpus is adequate, about 20-30% equity is recommended (much lower if the corpus is lower).
So, from 50-60% equity, one must reduce it to zero or 20-30%. Contrary to what people “recommend, ” this reduction must be gradual -either linear or step-wise – well before the goal deadline. We have established this after hours of backtesting, as explained in our goal-based portfolio management course and implemented it as an automatic output in our robo-advisory tool. Here is an example output from the robo tool.
Asset allocation schedule with the variation in the expected portfolio return as suggested by the freefincal robo advisory tool
So, this equity reduction schedule must be in place as soon as possible. Why? As you reduce equity exposure, the portfolio return will also gradually decrease. So you have to compensate for this by investing the right amount as early as possible. You can also DIY this asset allocation schedule with our portfolio review spreadsheet.
Now, we are ready for the portfolio review. The following questions must be answered once a year, and necessary action must be taken where applicable.
Did you invest as per your investment schedule over the last 12 months? If not, keep track of how many months you fell behind and aim to make up for it later.
How much will you increase your investments in the forthcoming 12 months? You can check if you did in the next review.
Is it time to change your asset allocation as per the above-mentioned de-risking strategy? If yes, plan for it ASAP.
Then, find out how much is your current portfolio worth today. If you retire today, how long would the corpus last? If you were to spend for your goal today, how far behind are you?
Then (and only then), look at the individual instruments and check if they are doing okay. If you choose index funds, then there is nothing to do. If you have stocks or active funds, you will have to take a call (after allowing a reasonable time and considering market conditions) on whether you need to buy more, sell or hold on to them without further investments. Yes, this is tricky, as it can be arbitrary, but if you get all the other steps right, this last one is not as important.
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Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over 13 years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), LinkedIn, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free, AUM-independent investment advice.Our flagship course!Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions!⇐More than 3,500 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market condition!! Watch the first lecture for free! One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.Increase your income by getting people to pay for your skills!⇐More than 800 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner seeking more clients through online visibility, or a salaried individual looking for a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts and pays you. (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos! Our book for kids: “Chinchu Gets a Superpower!” is now available!Both the boy and girl-version covers of "Chinchu Gets a superpower". Most investor problems can be traced to a lack of informed decision-making. We made bad decisions and money mistakes when we started earning and spent years undoing these mistakes. Why should our children go through the same pain? What is this book about? As parents, what would it be if we had to groom one ability in our children that is key not only to money management and investing but to any aspect of life? My answer: Sound Decision Making. So, in this book, we meet Chinchu, who is about to turn 10. The narrative revolves around what he wants for his birthday and how his parents plan for it, as well as teaching him several key ideas of decision-making and money management. What readers say!Feedback from a young reader after reading Chinchu gets a Superpower!
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Dr M. Pattabiraman (PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over 13 years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), LinkedIn, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free, AUM-independent investment advice.
Published by CNBC TV18, this book is designed to help you ask the right questions and find the correct answers. Additionally, it comes with nine online calculators, allowing you to create custom solutions tailored to your lifestyle. Get it now.
This book is designed for young earners to get their basics right from the start! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.
This is an in-depth exploration of vacation planning, including finding affordable flights, budget accommodations, and practical travel tips. It also examines the benefits of travelling slowly, both financially and psychologically, with links to relevant web pages and guidance at every step. Get the PDF for Rs 300 (instant download)