By Anand James
An old friend of mine recently showed his holding statement to me, hoping to get my comments on his portfolio. To give a brief profile of my friend as an investor: he is an engineer by education, he was also the regional manager of a successful automobile brand and had been into management for the last few years. So we can safely assume that he had the ability to take wise investment decisions. His portfolio, hence, did not surprise me, and it had covered most of the bases, when it comes to investment decisions. I am outlining the major ones here.
Not all of them delivered, though, and some of the funds from the pre 2013 did struggle to perform. Luckily, the portfolio was reasonably diversified within itself, and with a good mix of mutual funds, some popular at the time of investment, and others with a good track of return, which ensured that the returns given by the performing ones more than covered up for the bleeding ones.
Let the wine age
The portfolio had minimum changes; fund flow into one or two MFs were stopped, while a few new SIPs were initiated. Some say, compounding is the world’s eight wonder. Some others say that it is not about “timing the markets”, but about the “time in the market”. Both views, illuminating ideas, essentially point towards the need for letting the portfolio do the job that we expect it do, without disturbing it. But then, we also do not want to wake up one morning and find out that the entire investment amount has lost value. So, the question is: how often do you want to check on your portfolio and how often would you want to chop and change? The thumb rule is certainly not before one year, for an equity-oriented fund, in order to avoid short-term tax, and ideally after 3 years.
So, ideally, in a trending market, that is expected to have much more miles to travel, like ours now, the investment portfolio should at least beat benchmark indices or significantly outperform, if it is diversified and given enough to time for the fund manager’s strategy to work out. But despite ticking both these boxes, my friend’s portfolio hardly put a smile on his face, because the amount delivered was paltry, in terms of what he spends, and in terms of what his family needs.
Investment size, or the amount in rupee terms that you invest, whether it be as lump sum or through systematic investment route, is significant because the multipliers, by way of the compounding formula or time, can only work their charm on what is available for being compounded. In other words, if the amount that you have earmarked for monthly investment, be it in any asset, is nowhere close to your monthly expenses, then it means that you are under invested and under prepared to meet the expenses that may arise once your earning ability recedes.
(The author is Chief Market Strategist, Geojit Financial Services)