In Focus: Put Your Investments Back On Track

It is a well-known fact that one must have a plan in place to achieve investment success. It’s equally important to adopt an appropriate investment strategy so as to tackle different challenges during one’s defined time horizon. However, in reality, many investors either do not plan or abandon their long-term investment plan when faced with unfavourable market conditions.

Considering the complexities of the financial markets, it is strongly recommended that every investor must invest judiciously and follow an investment process to achieve his or her investment goals and be in control of such investments at all times. Needless to say, monitoring of the portfolio plays an important role in achieving the desired results from a carefully designed investment portfolio. In fact, it is equally important to carry out a detailed analysis of the portfolio once a year. This can be done at the start of a calendar year.

Although there is no significance of a new year in the review and investment process, it is always advisable to maintain the discipline of reviewing the portfolio at fixed intervals. If you want to be in control of your portfolio and would want to achieve investment success on a sustained basis, let the start of the year 2015 be the turning point in this direction. Remember, keeping an eye on your portfolio in a disciplined manner can go a long way in securing your financial future. Here is what you need to do:

Begin the process by focusing on risk management. Review your life insurance and make sure that you are adequately insured. Most investors in our country often make the mistake of either ignoring this important aspect of financial planning or choosing traditional products that are investment-cum-insurance products. In fact, many of them end up accumulating a number of polices. Remember, it’s not the number of policies but the quantum of risk cover that should matter to you. A term insurance plan is an ideal product to reduce your costs and to ensure adequate risk cover. Also make sure that you have adequate health insurance cover. Creating an emergency fund allows you to continue your investment uninterruptedly even when you are faced with any financial exigency.

Take a close look at your existing asset allocation. You must know that a significant part of your portfolio growth comes from the asset allocation. Therefore, you must attempt to have an asset allocation that can create the right balance between risk and reward. Therefore, if your asset allocation is either too aggressive or conservative, it’s time to rebalance it. The right way to do so is to invest in debt funds for short term, hybrid funds for medium term, and equity and equity-related funds for the long term.

If you have been investing in mutual funds, ensure that you do not have too many funds. Remember, over-diversification in your portfolio can affect overall performance in a negative way as monitoring its progress becomes a tedious process. As a result, you may fail to weed out non-performing funds from the portfolio which could pull down your overall portfolio returns. Remember, mutual funds are diversified investment vehicles and hence the right way to invest in, and so choose a few quality funds rather than investing in every fund that comes your way.

If you haven’t planned your investments for savings taxes so far, you must do it now. The right way to process would be to make tax savings an integral part of your overall investment plan. Besides, while planning your investments under Section 80C, you must consider the amount committed towards options such as PF, insurance premium, housing loan repayment and then decide the amount that can be invested in other options such as PPF, Equity Linked Tax Savings Schemes (ELSS) and NSC, etc. Allocation to these options should be in line with your overall asset allocation.

If you have been investing in equity funds through SIP on and off, it’s time to invest with a clearly defined time horizon. Remember, the more time you give your equity investments to grow, the more you benefit from its true potential as well as power of compounding. Also, investing systematically over a longer term helps in tackling volatility and benefiting from ‘averaging’.

If you have been investing in gold funds or gold ETFs either with an objective to accumulate gold for specific goals such as your child’s wedding or gifting gold to a near and dear one or as a part of asset allocation, you can continue the process. However, if made as an aggressive allocation in the hope of earning healthy returns, it’s time to tone down your expectations as well as realign the portfolio.