Whether you're a seasoned investor or just starting, a customised financial plan in line with your values and aspirations is the cornerstone of portfolio success. Without a robust financial plan, you risk being swayed by market noise and emotional decision-making.
Here are some of the key elements of financial planning for your portfolio to help you achieve your long-term goals.
Ask: What are you saving your money for?
Make yourself a personalised investment blueprint, integrating your risk appetite, goals, liquidity needs and time horizon. This encourages disciplined investing, safeguards against impulsive decisions and aligns your portfolio with your unique circumstances. For instance, a young professional’s goals with a long-term horizon and modest liquidity needs will differ significantly from that of a retiree seeking steady income.
Instead of ‘Save Money,’ set a concrete goal: ‘Starting this January, I will allocate 50 percent of my net income to systematic investment plans (SIPs) and 70 percent of these investments in large-caps.’
Choose the right advisor
A skilled advisor brings expertise, perspective and discipline to your investment journey. Your advisor should at the bare minimum have the attributes listed below.
Reputation: Choose an advisor with a track record of integrity and client success. Research their professional background and client reviews. Word of mouth recommendation—or a reference check—is the best way to search for a good advisor.
Large platform: An advisor with a large platform can offer diverse investment options and financial planning tools, and take a holistic view of your financial needs.
Research strength: Choose advisors backed by large research teams as they can provide insights into complex markets.
Non-conflicted remuneration: Seek advisors who have transparent compensation and have a fiduciary duty to act in your best interest. This avoids conflicts of interest tied to product sales.
Establishing a cadence of reviews
Regular portfolio reviews are crucial to ensure alignment of your portfolio with your goals and market realities. Establish a consistent review schedule—monthly or quarterly—and set a clear agenda covering performance, asset allocation, risk, attribution and costs. Reviews should also address life changes or market shifts, allowing for tactical adjustments if needed.
Given today’s market conditions—with high valuations in equities, gold, real estate investment trusts (REITs) and other assets—now is an ideal time to review your portfolio. Stress-testing your holdings can add resilience under adverse conditions. Ensure that your portfolio is well-diversified and can be encashed at short notice, and also evaluate whether you should realign any strategies or book profits in mid- or small-caps.
Controlling costs
Costs have a large impact on the value of your portfolio over time. Closely monitor the total expense ratio, which includes product costs and distribution commission or advisory fees. Evaluate the cost versus benefit for each product and ensure your advisor’s fees are justified by the value they provide.
Tax efficiency also plays a critical role; always consider after-tax returns when making investment decisions. In recent years we have witnessed substantial changes to the tax treatment for fixed income, hybrids, REITs, gold and unlisted investments, so be sure to work with an advisor who is knowledgeable about the nuances of taxation.
Also read | Why writing a Will is crucial for your estate planning
Succession planning
Succession planning ensures your wealth is protected and transferred according to your wishes, minimising taxes and avoiding legal hurdles. This may involve setting up wills, trusts and powers of attorney, along with appropriate beneficiary designations. This is an important addition to your financial plan as it safeguards your legacy, providing peace of mind that your portfolio will seamlessly pass on to your heirs.
Reflect, review and refine your approach
A successful portfolio starts with a sound financial plan, a customised investment policy and the guidance of a competent advisor. Regular reviews, risk management, cost control and stress-testing are essential practices. By adopting these strategies, you can navigate the complexities of financial markets and achieve your long-term goals.
On this World Financial Planning Day, take a moment to reflect, review and refine your approach to investing. Here’s wishing you happy and successful investing for the years and decades ahead!
Disclaimer: The views and investment tips expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.
The author is Head of Advisory & Key Clients Group, 360 ONE Wealth.
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