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Keep your financial portfolio in shipshape

A car has a long run when you review its mileage and service it every 3000 miles. The same logic applies to your financial portfolio.

Just investing your hard earned money in an instrument is not sufficient. You have to keep a track of its performance, compare it with its peers to ensure your portfolio is in good shape.

Need to review the portfolio

The need to review your portfolio can be triggered by personal or external circumstances.
For example, if there is a crash in any asset class where you have parked substantial funds, there may be a need to review it. Other reasons can be performance bonus, windfall gain or an increase in surplus funds because of a salary increment.

On the personal front, it can be marriage, parenthood or change in asset allocation because of a change in goals and age.

For example, you may have a high exposure to equity at an early age, as it helps you save for financial goals. You also have the risk appetite to deal with a portfolio that is skewed towards equity. The same strategy doesn’t apply when you touch 40. Your needs change and your responsibilities are bigger. Hence you have to balance the equity component with FDs, bonds, NCDs and insurance.

As a regular exercise, you should review your portfolio once in every quarter for investments of 1-3 years. For long-term investments, which can span from 5-10 years, an annual exercise will suffice.

Don’t act in haste

A review in portfolio doesn’t give you the leeway to make quick buy and sell decisions. For examples in your 20s and early 30s, asset allocation in your portfolio could be in the ratio of 70:30. You have to broadly maintain this ratio. However, you can alter the strategy for fresh incremental money.  This is because, investment strategy especially for long-term instruments is tailored to meet your milestones.

Secondly you should have some ballpark figure on how much you want to save by the end of a year and work towards it through your investments. Moreover, you should evaluate the performance of your entire financial portfolio, not just debt or equity. Lastly, don’t read too much into the daily movements of individual stocks or mutual funds and its impact on your portfolio. Getting the big picture right in terms of right asset allocation matters the most.