Personal Finance Portfolio: Key things investors should consider before the year ends

Rising inflation, macroeconomic conditions and geopolitical issues played heavily on the minds of many investors in 2022, and as the year draws to a close, investors need to know what has worked well for their personal investment portfolio and what needs to be improved

Key things to consider during your annual personal finance portfolio review:

According to Omkeshwar Singh, head of RankMF at Samco Group, one important thing investors should remember is to assess the quality and volatility of their portfolio.

“Investors should assess the quality and volatility of the portfolio along with the current state of personal finances and should set goals and objectives with asset allocation in mind,” he says.

According to Shweta Jain, founder of Investography Pvt Ltd, investors should keep the following points in mind while evaluating their portfolio:

1. Goals for the next year and where the cash flow will come from.

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2. Any change in income or expenses that must be accounted for and modified.

3. Any changes in investment plans.

4. How you are performing your asset allocation.

5. In the case of funds that have to be sold or redeemed, your investment philosophy or your fund manager has changed; or if the fund’s performance is up to par, and if not, why?

4. By making sure to align their portfolio to their goals and requirements, they can ensure a long-term commitment to equity.

Rahul Roy Chowdhury, Head of Wealth Business at Equirus, says rebalancing is another crucial aspect. “A periodic rebalancing helps achieve financial milestones and keeps investments on track. An annual rebalancing should be done and necessary changes made to maintain the strategic asset allocation (equity: debt). Stick to the basics of investing and avoid the Market noise is key to long-term wealth creation,” he adds.

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Renewal of the personal finance portfolio:

During the renovation, Singh says the health of your personal finance portfolio needs to be reviewed. “Investors should review the health of the personal finance portfolio, as well as align it to goals and targets after considering macroeconomic conditions, i.e. inflation, interest rates, etc,” he says.

In addition, he adds that asset allocation should also be reviewed and, if necessary, changes made. According to him, planning the New Year based on savings and spending and channeling savings into investments is another crucial thing.

According to Roy Chowdhury, over-diversification is a big no-no. “A common mistake investors should avoid is adding funds to the portfolio along the way. Over-diversification can be a big drag on portfolio returns. That happens when you keep adding funds and you have to check for overlap between similar funds at the portfolio level,” says Rahul.

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He further adds that with each fund the investor adds 50-60 stocks in the portfolio and hence joining a core portfolio of 4-6 funds is good enough for significant diversification.

How to make a strong wallet?

According to Singh, investors should remember the following points to build a strong portfolio:

1. Select investment based on portfolio quality and not historical returns.

2. The margin of safety must be evaluated so that the portfolio is properly valued.

3. Assess the risk associated with the portfolio and the resilience of the portfolio.

4. Align all of this with your goals and objective, and then make investment decisions.

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