Behavioural biases that damage your investments!
In matters of investment, the sooner you acknowledge your mistakes, the sooner you'll find help in getting out of the soup. To break free from biases, the first step should be to identify those biases, says, Balwant Jain, Tax and Investment Expert.
Why do we start the financial year on April 1? So that we remember not to fool ourselves into thinking it is a valid marker of time only for businesses. It is a good excuse to get your personal balance sheets in place too. Ergo, here goes our list of five action points to set you up for a solid start to FY22.
1. Review your investment portfolio
The most important rational action for any investor is to intermittently check on planned asset allocation. Take the time to review how your funds have performed. Don’t go by performance alone but check if there is anything fundamentally wrong with the composition or if all looks good. Also, rebalance if there is a significant shift in asset weights. As a thought exercise imagine had you done this at the same time last year and the rich benefits you would have reaped by shifting from debt to equity.
2. Plan for your income tax deductions
Most of us end up scrambling to put in investments at the last minute. If you plan out in the beginning itself, even with a slight margin, then spreading the amounts in your chosen ELSS fund over the remaining year works out much better. The cash outflow is distributed over a longer period and the unmatched benefit of cost averaging through SIP is a cherry on the icing.
3. Review insurance policies and premium commitment
Put all your insurance policies under the scanner. Map out the coverage, premium commitment and the timelines. Ensure you definitely do it for the big three — life, health and auto. This will help not only with analysing whether any tweaks are required but also help avoid springing any last minute surprises for the premium payment.
4. Review ongoing loans
This is one of the best times to go loan shopping. List down your loans, the outstanding amounts and current interest rates. Do some research to see whether you are at the lowest rates. If not, do your calculations to check if refinancing makes sense, especially for longer loans like home loan. If yes, get to work to start the shift.
5. Check on your emergency fund
In 2020, many of us had to dip into the emergency kitty. This is the time to check on how it is faring, whether it needs to be made more robust and to make provision for any refills required.
It is often said a good start is half the job done. Do these five tasks and set yourself on the path to financial peace of mind.
(The writer is co-founder & CEO, MoneyFront. Views expressed are personal)