It remains a healthy finance practice to review investment portfolio periodically to ensure maximum returns in the long run.
An investment portfolio, which is a collection of assets, represents all the investments that an investor holds. Take, for instance, stocks and bonds, mutual funds (MFs), exchange-traded funds (ETFs), real estate investment trusts (REITs), and even cryptocurrency, which essentially form part of assets.
As an investor, start by looking at the investment horizon. The longer the investment horizon, the more time to grow investments through compounding.
Besides, staying invested for longer durations allows time to ride out short-term volatility that the market is likely to experience.
In addition, take note of the risk appetite or tolerance and style of investing. For instance, consider the short-term and long-term needs of a family. In case there are immediate needs, an investor should be taking on less risky investments.
Consider the quality of the portfolio and not just the historical returns or performance alone. Also, in case analysing past returns, then try to focus on 10 years or more of returns. However, investing purely based on historical returns makes investing success more of a subject of chance.
Similarly, take into account the quality of the portfolio, which relates to high profitability, whether that profitability is measured as return on equity (RoE), return on assets (RoA), return on invested capital (RoIC), or whatever profitability an investor may want to consider.
Also, take into consideration the margin of safety, which is the difference between the expected return on an investment or asset and its cost. This should be assessed so that the portfolio is adequately valued.
In addition, also assess the risk associated with the portfolio and the resilience of the portfolio. Resilient portfolios are known to take measured risk accounting for uncertainty, tend to hold diverse exposures and adapt to changing market conditions in the long run. This includes both known and unknown risks.
Most importantly, make investment decisions based on alignment with personal objectives and goals, which is always to build and manage an investment portfolio in a way to grow the wealth over time.
Rajiv is an independent editorial consultant for the last decade. Prior to this, he worked as a full-time journalist associated with various prominent print media houses. In his spare time, he loves to paint on canvas.