Most of us read lot about the
details of various financial instruments available and even the literature on how
they tend to work. Though, not all is digested one makes an attempt to go
through on how it’s invested and etal. And when it comes to ones needs, the
list is almost always clear in mind. Especially of those that are of higher
priorities like children’s education, retirement and other needs. However, if
one has to probed a bit more, the finer details of how much is needed, etc.
remain unclear. That of course, needs the help of a professional.
How many times has one understood
a particular investment suits a certain need? It’s practically impossible to
map an investment portfolio on to a set of different needs. Add to this
confusion, is a list of continuing investments through systematic investments
like SIP/STP, switches, redemptions and reinvestments; it’s only natural to
feel lost in the woods. This raises the question if the earlier well-thought
designed portfolio is correct.
This doesn’t need a rocket
science and actually quiet rudimentary in approach that solves this problem. How
many times has one jotted down on a paper of what’s required and defined an
objective for the same? It’s a rare evet in most lives. This forms critical as
the entire investment philosophy derives from this exercise and the nature
& extent of the investments could be defined from the investment objective
easily.
Even if one were to look at any
investment available in the market, it first starts with an investment
objective (all thanks to the standardisation by the SEBI) so that one could
understand the true nature of the investment and also assess the extent of risk
associated. This is important because each need has different timelines and
requirements. For instance, a source of emergency fund should be highly liquid
and accessible but almost it’s on vice versa for a retirement fund which has to
yield better even as it remains less liquid; while that of a plan and style of
investment for children overlaps caution and aggression.
So, when designing a portfolio, a
defined set of investments are mapped to a particular need and there could be
an overlap of investments for one need or a particular need could be serviced
through different sets of investments. This is where if the investor is clear
with his objective, it would be easy to evaluate, assess and take corrective
action on their portfolios.
I’ve observed that most investors
fall in either of the two categories: one who keeps checking the portfolio at
shorter intervals and the other who rarely checks the portfolio. This is
nothing to do with the trust upon the advisor but the reasons vary from not
aware of what was done, doesn’t completely understand the nature of the
investment and even a pretext of not good with numbers.
One has to understand that it’s
truly difficult to navigate complex investments and their strategies if the investor
is unclear of what to do. So, for a meaningful interaction with an advisor and
for rich dividends across investments, the investor should be well aware of his
requirements, priorities and preferences. This way one could question, help and
evaluate the advisor better.
