Why should we review our portfolio at regular intervals?
Investment portfolio review is an holistic analysis of your asset allocation, diversification, risk exposure among other KPIs.. It is necessary to evaluate if it is aligned with your financial goals, risk profile, current saving potential and optimum allocation from taxation point of view. By diligently evaluating your portfolio regularly, you can ensure that it remains aligned with your financial needs and adapt to the changing market conditions.
Portfolio review comprises of following key ingredients:
- Adapt your portfolio to changes in your personal life situation – Over time, your needs and goals may change or get adjusted due to factors such as changes in lifestyle standards, marital status and age. These shifts may necessitate the addition, updation or deletion of certain needs from your financial plan. A regular portfolio review can help the investor implement such changes in a timely manner.
- Asset allocation: This refers to the proportion of the portfolio divided into different asset classes. For instance, an investor who is risk-averse aims to maintain a 60 to 40 ratio between debt and equity. After completion of 1 year, his portfolio’s asset allocation changed to 45:55 since the markets experienced a bull run. The investor can opt to change the asset allocation to maintain a ratio of 60 to 40 to remain in line with their risk profile..
- Identify underperforming investments – By identifying investments in the portfolio that have exhibited continuous underperformance over a period of time, the investor can change these to effectively progress towards fulfilling their financial needs.
- Taking advantage of market opportunities – Regular portfolio reviews present an opportunity to capitalize on market dynamics and optimize investment outcomes. Investors can adapt their asset allocation based on the market outlook, potentially enhancing overall portfolio performance. However, it is important to consult a mutual fund distributor to make informed decisions.
- Tax efficiency – Investors can adjust investments to ensure the tax efficiency of their portfolio, resulting in potential reductions in tax liabilities.
Conclusion:
Regular portfolio reviews play a critical role in optimising investment outcomes. Implementing a disciplined approach to review will help you to make informed decisions and maximise portfolio returns. Always consult your mutual fund distributor to make informed decisions.