Design your investment portfolio based on needs

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 when it comes to one’s 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, even if one probes 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 one has jotted down on a paper of what’s required and defined an objective for the same? It’s a rare event in most lives. This is 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.
(The author is a practising financial planner and could be reached at [email protected])