Five things to keep in mind while reviewing your investment portfolio

As you advance in your career and grow older, your life goals change. The new goals also call for change in financial allocation.

  • Money9
  • Updated On - July 22, 2021 / 12:51 PM IST
Five things to keep in mind while reviewing your investment portfolio

Tracking and reviewing investments periodically should be part of every active investor’s routine. This helps in assessing performance of each investment and to make course corrections accordingly. Investors today have the assistance of technology that has not only made it easy to invest, but also made it simple to track them. Be it fixed deposits (FD), stocks, mutual funds – both domestic and overseas – all can be tracked using applications on your mobile phone.

Here are a few things that you should be aware of while tracking your investment to have a stable portfolio which gives good returns.

Match returns with expectations

Often investors end up with stocks and equity mutual funds that do not move even as the overall market does well. Or a bond fund may show a miniscule return of 2% over one year compared to the much higher returns of equity funds during a shorter period due to a bull run in the stock market. This may prompt the instinct of selling the debt investment and plough the proceeds into an equity fund. This could be fraught with danger as equity is risk class of investment. If shifting debt to equity goes against your asset allocation it may prove counterproductive in short- to medium term.

Instead you should look at the performance of each investment in the context of expected performance. Comparing laggards with the best performing investment class at that moment in the market may not be the best approach.

Identify relative laggards

If you are investing in actively managed funds or stocks directly, then you should also check their performance with their peers and benchmarks. If you find a short to medium term underperformance, then you should consult your financial advisor and keep such laggards on your watch-list and gradually get rid of them. There may be instances when the advisor would ask you to not sell the existing investments while advising against investing fresh money into it. New money can be put into better schemes.

Compare cost and returns

Costs and expenses are critical to your portfolio’s returns. As more information is made available to investors using technology, the scope for generating excess returns over market returns also goes down. This makes many investors to take a hard look at the costs, especially the expenses charged by the actively managed funds. While reviewing your portfolio, you have to keep track of the expenses you incur to invest. Over a period of time, you should shift your old investments to lower cost avenues. However, too much churn can also impact returns as expenses – such as taxes on capital gains – would be deducted each time.

Be mindful of your targets

Most investment trackers show the total value of your existing investments. However, you should be tracking your existing portfolio value in the light of future needs. The target values are arrived at factoring in inflation and lifestyle inflation. This gives you an idea if there is a shortfall in your monthly investments.

Investors often stop their regular systematic investment plans (SIP) in mutual funds or recurring deposits in banks when the going is not good and even want to liquidate their investments to tide over financial hardships. While liquidating investments could a need at that point, the gaps created should be filled at the first opportunity. Tracking your investments should also help you to identify such gaps.
If possible sign up for a systematic transfer plan (STP) and invest more money to make up for the lost months or year. Increasing your regular investments is an important step to enhance your portfolio.

Rebalance to retain asset allocation

Portfolio tracking exercise should always review your asset allocation – the proportion you want in each asset class – equity, gold and debt. If you notice any large deviation from the original asset allocation you started with, it is time to consult your advisor and review your portfolio to rebalance it.
As you advance in your career and grow older, your life goals change. The new goals also call for change in financial allocation. Mapping your investments against these new goals is important failing which the entire exercise may lead to missed targets.

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