Investment Portfolio Review: Process and its importance

Investing is akin to gardening. Just like art and science are involved in gardening, investing requires decision-making and timely monitoring. You are sacrificing present consumption and investing your savings to meet your future requirements. Whether you are investing on your own or you are taking investment advisory services from a Fee Only Financial Advisor in Kolkata like us, investment portfolio review is very important.  It is to evaluate the probability of meeting your financial goals within the stipulated time frames.

Creating a diversified investment portfolio is one aspect. Carrying periodical investment portfolio review is the other critical aspect of investing. 

An imbalanced portfolio not only restricts you from fulfilling your financial goals within the required times but also weakens your financial strength. What’s worse is that you would probably never know about this till it’s too late.

Why is investment portfolio review important?

“Invest and forget” strategy actually does not work in the dynamic scenario. It’s because:

• Your financial situation may have changed. You may be looking change your career path or you may be deciding to quit your job and start your own professional practice. You may require fresh capital. Alongside this, you need to make provision for children’s future, your retirement days, and other requirements. Revisiting your existing investments will give you a fair idea about your financial position.

Your assumed income growth may not be taking shape in reality. Thus, your investment capacity is taking a hit. But, you have to fulfill your financial commitments within the required time-frame.

Your personal aspects may change with time. Family structure may change, leading to new responsibilities. Preferences may shift. Adjustment in investment strategies is required in such cases.

All these and various other unique factors call for investment portfolio review. Otherwise, family’s financial security may be impacted.

• Economic factors keep fluctuating as well. Thereby risk-return scenario may shift.  All sectors are not expected to perform uniformly. It is typical that few sectors will outperform others at any given economic scenario. Choosing the “best” investment options is a myth. Also, we cannot time the market.  Falling prey to greed and fear while investing can be ruinous. Thus, optimum diversification strategy is really important for wealth creation in the long run. Investment portfolio review is mandatory as any one or many economic factor(s) change so as to incorporate the changes necessary.
  
  Historically, it is evident that financial markets are cyclical. Because of developing economies, markets will fall and rise. Ultimately, the curve is upward sloping in the long run.
• Your risk profile may have changed. Usually, risk profiling is done at the start of the investing journey. But, your risk profile changes with time. Your ability to take investment risks and/or your willingness to take risks while investing may have shifted. It may be due to any life-event and/or by acquiring investing experiences. Thus, it is advisable to analyze your risk profile once a year or once in every 2 years. As, Arijit Sen is a SEBI Registered Investment Adviser in Kolkata, we consider risk profiling as the corner-stone of our investment advisory process. We intend to take calculated risks with the motive to grow your wealth over time.
• You may have revised your Financial Plan – Your financial goals may have been altered/ adjusted. With change in your Financial Plan, investment portfolio review is an absolute requirement to stay on track.

Maintaining favourable asset allocation helps

Your investment strategy should reflect what you want to achieve. Investing in Mutual Funds is not like choosing few schemes that have delivered handsome returns in the last 3/5 years. We cannot know whether the future will resemble the past. 2008 financial crisis was different. Market fall in March, 2020 was different. In case of market dips, maintaining favourable asset allocation helps you to take advantage for your long term goals and avoid erosion of accumulated money when your are approaching your financial goal.

Investment portfolio review ensures that your investments are aligned to your financial goals

Do you analyze the risks a particular fund manager takes to generate return from the market? Do you realize what optimum level of risk you make take to achieve your financial commitments? Your investments should always be relevant for your future requirements, based on your risk profile, personal and macroeconomic factors. 

As Certified Financial Planner in Kolkata, our thought process behind investment portfolio review is not at all advocating against “buy and hold” strategy. 

Investment portfolio review is process oriented

As Financial Advisor in Kolkata, we strongly regard that your investments should be aligned to your financial goals. So, the processes related to investment portfolio review aims at checking the following:

• How’s the progress towards your time-bound financial goals.
• Whether current asset allocation is in line with your risk profile, financial goals and market scenario.
• Whether the investment risks are at optimum level in the portfolio based on prevailing macroeconomics.

One needs to understand the fact that entire exercise is not carried out to maximize return on investment. Rather, as Financial Consultant in Kolkata, we accredit that the centre of attention is managing risk through appropriate asset allocation.