Shock proof your portfolio

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Most of us would have, over the past one year, seen that our equity portfolios had swollen alarmingly, and yet we continued to pump additional money into equity. This in the end resulted in our portfolio getting so heavily biased towards equity that when the markets corrected it hurt us much more than we could tolerate. A more pragmatic approach would have resulted in us booking some profits or making fresh investments in Fixed Income securities only. This would have moved our portfolio back to our original asset allocation and thus to a risk tolerance we would be able to digest.

While all this sounds like good advice in hindsight, you must remember that this is not 'me' timing the market or advising you on market direction, but an automatic way to ensure that your portfolio is always balanced and in-step with your asset allocation.

You will thus realize that financial planning is an extremely important tool to build long term savings. Realising ones financial goals does not involve only putting in place a financial plan but also following it up regularly and taking action as and when required. It's also important to remember that our risk tolerance and saving capacity keeps changing with the size of our personal balance sheet and cash flow, so having a review of ones financial goals and saving pattern once a year is extremely important.

Remember your asset allocation is a function of your risk profile, financial goals and saving capacity. All these 3 are dynamic and keep changing with time and situation, so it's imperative that you re-visit your financial plan at least once a year for a review. A well documented plan will also ensure that you stick to the same during all times and thus reap the benefits of regular investing.

The Tipping Point is a financial advisory firm based in Fort, Mumbai. The author, Aditya Apte is a Chartered Accountant and has completed LLB (Gen). He can be reached at thetippingpoint@gmail.com .