Have you done your and your portfolio’s annual health check-up?

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Word ‘healthy’ prompts an array of words in my mind viz. strength, endurance, longevity, immunity. Add responsibility to that and it gives a sense of comfort and security. A HEALTHY PORTFOLIO is what you can count on. It is a manifestation of thoughtful planning, good and consistent feed, continuous attention and adaptation. As a primer, I am highlighting broad aspects of portfolio management.

Environment

Macro-economic environment

“Is our economy doing well?”
“Is the inflation too low or high?”
“Are commodity prices rising?”
Where’s the currency headed?”

Answers to these and many more questions influence asset allocation decisions dictating how much of the portfolio should be in debt, equity or alternative assets such as real estate.

Micro-economic environment

Industry and company specific aspects that define productivity (Return on Equity, Return on Capital), profitability (Profit Margins) form micro-economic environment. This guides in selection of securities and/or investment vehicles in each asset class.

First part of portfolio health-check will focus on whether asset allocation is right for current environment and client’s life cycle stage, assets, liabilities, income, expenses etc.

Construct

Portfolio management at its core is management of risks to maximize the rewards. Portfolio must endure the adversities and thrive during conducive environment. Some elements of construct are:

  • Asset Classes: Am I aware of various assets where I can invest such as fixed income (debt), equity, alternative assets (real estate, commodities etc.). What are the ways in which I can invest in these?
  • Diversification: Have I put all my eggs in one basket? Do I hold excess of fixed income (such as PPF/FD) or I have excess of equity shares? Have I considered my homes as investments? Balance is always better!
  • Liquidity: If need arises, how much can I convert to cash without compromising on fair price? A distressed sale will add to worries during emergencies.
  • Risk & reward management: What is the correlation of my portfolio with my income source? Will I lose both at the same time? What are my post-tax returns? Is there a tax-efficient way of investing?

Review and Management

Whatever is built must be reviewed, maintained and managed with due respect to changing environment.

Is there an ideal review and re-balancing schedule?

How much value professional help will add to my portfolio?

Have a healthy and wealthy portfolio!

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