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How to timely review your investments in simple steps

Portfolio : A collection of investments owned by the same individual or organization.

financial investment : It refers to a fixed amount of money and expecting some kind of gain out of it.

Will : legal declaration of how a person wish his/her possession to be disposed after their death

Fund : An amount of money saved or collected for a particular purpose

Return : Profit or loss derived from an investment

It’s the average of several of stocks in the market. It represents the market as a whole or as a part of the market.

The gain or loss in an investment over a specified time, with respect to the amount of initial investment. It is generally given in percentage.

Bombay Stock Exchange Sensitivity Index or SENSEX is the weighted benchmark index of 30 largest and most actively traded stocks on Bombay Stock Exchange.

A set of assets which an investor holds. This may contain equities, mutual funds, insurance and other cash equivalents.

Wealth is accumulation of resources or as on date value of assets a person own. Commonly Net worth is the measure of Wealth of an individual.

How would you react if someone told you that merely making a financial investment was enough to guarantee long-term wealth creation?

I am sure you would take it with a pinch of salt because making an investment is something and earning consistent rewards out of such investments is another thing altogether. “Unpredictability” is the hallmark of the financial market therefore investments need to be nurtured and monitored regularly.

Why to have a structured investment review process?

The volatility of the market often results in calculations going awry. Bonds and stocks could either receive a boost or take a hit. This could eventually translate into either a positive or adverse impact on the profitability prospect of individual investments and portfolios.

Merely making an investment is not enough; successful monitoring of such investments is the essence of long-term wealth creation.

Keeping this fact in mind, a structured approach to the task of making investments and building on them is the key to prosperity.

Following these simple steps one can reduce the gap between expectation and actual achievement as far as investment and wealth creation is concerned:

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Comparison:

Comparing with a laid down standard or benchmark can reveal a lot of information. Just as the grade card of our child, when compared with the best in class, tells us where our child lacks, comparison against a benchmark index of investment can tell us how our investment is faring against the best in class.

A small-cap, mid-cap or large-cap mutual fund could be weighed against the appropriate index like NIFTY and SENSEX. If the particular fund fails to conform to the benchmark standards it is time to change the portfolio. Regular monitoring will definitely help in keeping the portfolio on track.

Expected Return vs. Real Return :

Referring to the child’s grade card example above, it is a fact that every child and parent seeks to achieve a particular percentile and accordingly work diligently towards it. Any correction in approach that requires to be made can be done by assessing performance in class tests and comparing them with the expected target.

It is somewhat similar with investments too. Fixing an expected rate of return and watching the performance on a term-based basis will reveal if the investment portfolio is on track, if not, necessary modification and adjustments may be made. The idea of this exercise is to check if the returns that the portfolio is offering, actually fulfills, falls short or overshoots your expectations with respect to the broader financial plan.

Asset Allocation:

Performance or underperformance of an asset class in your portfolio may make your portfolio derail from the desired asset allocation.

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Example:

You have 10 lakhs to invest. Your desired asset allocation is 70:30 in equity and debt. So you invest 7 lakhs in equity and 3 lakhs in debt.

The equity market goes up by 25% and debt market yields 8% in one year. End of one year your portfolio values will be 8.75 lakhs in equity and 3.24 in debt. Because of the portfolio performance the present asset allocation 73: 27.

Now, in order to bring back the desired asset allocation in your portfolio, you need to withdraw 3% from equity and reinvest in debt.

This periodical review is required to maintain the desired asset allocation.

Professional Review:

Getting professional help to manage investments is always a good idea. Often individuals do not have the time and inclination to handle their own investments on a regular basis, in such conditions professional financial advisers can contribute positively.

From drawing up a proper financial plan to monitoring them and taking corrective action whenever required needs a lot of application. It also entails working with various tools that facilitate decision-making. A professional adviser with sufficient exposure and knowledge is a perfect choice in such circumstances.

Reviewing your investments with a professional financial planner will save your time. The expertise the financial planner brings is invaluable. That gives you reassurance and confidence that your investments on the right track and progressing at the right speed.

Stay Invested:

Last but not the least, in order that your financial plans materialize on expected lines, it is imperative that you stay invested and do not take any knee-jerk decision. After all, staying invested is the first criteria for achieving your financial goals.

If you liked this article, please comment in the below box. Let us know how you will review your investments.

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2 thoughts on “How to timely review your investments in simple steps”

  1. I do review my investments. A few years ago I had about 35 % of investments in Fixed deposits in Banks and was getting interest of 8 %. I shifted all these to Balanced mutual funds which were of rank 1 in CRISIL rank. I have added all fresh investment to the same three funds. These funds are showing a growth of about 15 to 20 % per year.
    I have kept about 30 % of my assets in savings bank accounts. Mostly outside India. If the stock market crashes again like year 2008-09, I will invest 60 % of my cash in stock and mutual funds.
    I will still have enough cash to last about 4 years of expenses.

    1. Dear Sanjeev,

      It is a good move that, you changed your Fixed deposit investments to Balanced funds.

      Instead of Keeping 30% in a savings account, you may consider investing the same in liquid funds and debt funds.

      Also, consider time in the market instead of timing the market.

      Ramalingam

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