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 several investors in 2022 and as the year is about to end it is necessary for investors to know what worked well for their personal investment portfolio and what needs to be improved. 

Key things to note during annual review of personal finance portfolio:

According to Omkeshwar Singh, Head RankMF at Samco Group, one significant thing that investors need to remember is assessing the quality, and volatility of their portfolio.

“Investors need to assess the quality, volatility of the portfolio along with looking into the current status of personal finance and should set goals and objectives considering Asset allocation,” he says.

According to Shweta Jain, Founder of Investography Pvt Ltd, investors must keep the following points in mind while assessing their portfolio — 

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

2. Any change in income or expenses that need to be accounted for and changed.

3. Any change in investment plans.

4. How their asset allocation is performing.

5. In case of funds that need to be sold or redeemed - if their investment philosophy or fund manager has changed; or whether the fund's performance is up to the mark, and if not, why? 

4. Making sure to align their portfolio to their goals and requirements, they can ensure long term commitment to equity. 

Rahul Roy Chowdhury, Business Head, Wealth at Equirus, says that rebalancing is another crucial aspect. “A periodic rebalancing helps to achieve the financial milestones and keeps investors on track. One should do a yearly rebalancing and make necessary changes to keep the strategic Asset Allocation (equity: debt) in place. Sticking to the basics of investments and avoiding the market noise is key to long term wealth creation,” he adds.

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Revamping personal finance portfolio: 

While revamping, Singh says that one needs to review the health of their personal finance portfolio. “Investors need to review the health of the personal finance portfolio, further they need to align it to objectives and goals after considering macro-economic conditions, i.e. - inflation, interest rates, etc,” he states.

Further, he adds that asset allocation should also be reviewed, and, if required, changes should be made. According to him, planning for the new year based upon savings and expenses and channelising the savings into investments is another crucial thing.

As per Roy Chowdhury, over diversification is a big no no. “One common mistake investors should avoid is addition of funds in the portfolio along the way. Over diversification can be a big drag on the portfolio returns. That happens when you keep adding funds, and one needs to check the overlapping of similar funds at a portfolio level,” Rahul says.

He further adds that with every fund the investor adds 50-60 stocks in the portfolio and therefore sticking to a core portfolio of 4-6 funds is good enough for meaningful diversification. 

How to make a strong portfolio?

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

1. Select the investment based upon the quality of the portfolio and not the historical returns.

2. Margin of safety should be assessed so that the portfolio is adequately valued.

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

4. Align all this to your objectives and the goal, and then take investment decisions.

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