Set Goals first then Plan your Investments

Nikhil Walavalka, Economic Times 12/4/2012


All of us know we have to save and invest if we want to achieve our financial goals. We diligently penny-pinch to save money and invest in various financial instruments like bank fixed deposits, company deposits, bonds, mutual funds, stocks and so on.

However, according to financial pundits, most of these ‘invest-as-you-go’ portfolios don’t really deliver the goods. It is mainly because the portfolio is nothing but a host of stuff put together – mostly at the advice of some friends or colleagues or on the basis of the market performance – without a proper thought.

Worse, most people don’t even bother to track their investments regularly or restructure or rebalance the portfolios accordingly.

"Such portfolios typically include too many products which are difficult to track. There is also no thought behind most of these portfolios and these may not be helpful in achieving the financial goals of investors," says Vishal Dhawan, founder, Plan Ahead Wealth Advisors.

Articulate your financial goals

However, this is not to suggest that if you have invested your kitty in such a portfolio you are doomed. You can always take stock of the situation and take remedial measures. Of course, it indeed comes at a cost, and most importantly the lost opportunity cost.

"Make a list of investments you have in your existing portfolio and articulate your financial goals in money terms along with time lines," says Uday Dhoot, deputy chief executive officer at International Money Matters.

The first step of taking stock of investments can be done by going through your investment records. For the purpose of quantifying the financial goals you can either use an excel sheet (if you are savvy enough to use it) or use financial calculators offered by various websites.

Once you have goals and the time to achieve them on paper, tally them with your investments to make sure that you have the right investments to meet your goals. For example, fixed deposits and relatively safe investments, such as short-term bond funds and fixed maturity plans, can be used to achieve short-term goals.

Diversified equity funds with good track record can be aligned with long-term goals. This process will ensure that you switch to goal-based investments from random investments.

Take stock of the situation

Okay, now that you know the details of your investments, it is time to check how they have performed. Don’t look at numbers in isolation, always compare products within the same category and relevant benchmarks to get a complete picture.

"You have to judge each product against the relevant benchmark to ascertain if it has delivered," says Vishal Dhawan. For example, if you have a large-cap oriented fund in your portfolio, you have to compare its performance with indices such as BSE Sensex or BSE-200.

Make sure that you are not making wrong comparisons. For example, you may be currently facing a situation where a fixed deposit with a nationalised bank is offering better returns than a diversified equity fund over one year.

Resist the temptation to hit the sell button on equity investments and transfer all money into fixed deposits. Remind yourself that these products are strictly not comparable, and they have different roles to play in your overall portfolio.

The whole point of the exercise is to get rid of the products that did not deliver against their relevant benchmarks, not all products. You don’t have to necessarily sell everything in your existing portfolio to build a new vibrant portfolio.

Get rid of dud stocks

While selling the underperforming investments, have a look at the charges associated with the exit. For example, most insurance policies have surrender charges – the longer you hold, the lower the charges.

One can also wait for some weeks in case of short-term bond funds, if he is keen to avoid the exit load. In case of equity products, however, you have to be careful.

On many occasions, investors want to hold on to equity investments for some months to make it long-term capital gains. But that may be rather risky.

"An underperforming equity fund can lose money as you wait for the long-term tax-free profits," says Ranjit Dani, a certified financial planner with Nagpur-based Think Consultants.


Tax in India, investment in India, investment management, financial planner, money investment, investments in India, investing in India, taxes in India, retirement plan, financial advisor, financial planners, financial services in India, financial advisors, financial planner advisor, retirement plans, financial investment, insurance plans in India, investment portfolio, wealth managers in chennai india, financial plan, financial planning advisor, financial consultant, financial consultants, financial companies in India, investment advisor, certified financial planning, financial planner India, certified financial planners, Investment Mutual Funds Consultants Advisers in Chennai India

Post your Valuable Comments below:

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.