As this calendar year comes to an end and the New Year sets in, it's time for a number of review and allocation exercises for investors
Some make it a habit to look into all the financial issues every December. The argument is that the year-end is a relatively free period and more importantly, a number of financial markets like equity are not very active during this period. This, according to them, makes the portfolio less dynamic and in turn allows one the much-needed time for review.
Is then a new calendar year a good time to reset the clock for an investment portfolio?
While the timing is according to the convenience of the investor, a portfolio should be on an yearly basis as it makes the investor more nimble-footed. You should be careful as a review need not amount to chopping and churning, but can be restricted to certain guidelines. For instance, if an investment has been made with the specific objective of meeting expenditure, you should monitor if it is meeting the need. A classic example is investments in tax saving schemes. At a younger age, an investor may have invested only Rs 40,000-50,000 to take care of the tax relief. The increase in income over the next few years may push him to allocate more.
Similarly, a systematic investment plan (SIP) to take care of a property investment may become insufficient if there is a sharp rise in property prices or if there is a change in the needs of the investor. Hence, a portfolio should focus on a number of factors which need not amount to switch-in or switch-out of a product. It could be more from a strategic point of view.
Here are some guidelines for reviewing a portfolio:
Expense and income management
Investment is all about putting the surplus money into good use. Hence, if there is a change in income, recalibrate the investments. It holds good for expenses too. In the high-cost inflation scenario, chances are that investments may not materialise as planned earlier and it is not financially prudent to make investments at the cost of borrowing.
The New Year is the best time to draw up the expense and income statement.
Draw fresh goals and review old ones
While an investment journey for many begins with the idea of accumulation, it should acquire the shape of financial goals over a period of time. Not only does it make the process exciting but also gives a sense of achievement when completed. Hence, make a list of financial goals at the beginning of every calendar year and break them into shortterm and long-term goals.
Treat yourself to some goodies after achieving goals as every individual needs a pat on the back for a great job done. More importantly, if a goal finds itself in the list for too many years repeatedly, it is also time to accept the reality and strike it off from the list. So, the best way to deal with the problem of non-performance is to be little realistic with the entire process.
Review investments
This is the most important aspect of a New Year exercise and it can be achieved in a number of ways. The simplest of them is to make sure that all your monthly and annual investments are met as per the deadline. For instance, if you have signed up for a SIP, check if all installments have taken place. So is the case with long-term products like insurance premium, public provident fund or annual tax returns. Since most of these investments require annual payments without fail, they should be priority.
The next stage is the review of performance. Any non-performing investment over a long period of time should find action in the new calendar year. Typically, such actions are necessary in the case of equity investments. For those who are focused on asset allocation, the exercise should be even more stringent as the equity markets are more volatile as compared to other assets.
