Personal Finance Portfolio: Time for Year-End Assessment

It is that time of the year when it is essential to undertake a health review of the personal finance portfolio. Surging inflation, macroeconomic conditions, and geopolitical issues played heavily on the minds of several investors this year. So, here’s the strategy for the portfolio review, in no particular order.

Take a review of overall progress: Start by analysing things such as consistent savings, clearance of debts and bills on time and so on. Also, take into account the various sources of income and whether they continue to remain stable. 

Market fluctuations and economic downturns marked by high volatility or spike in interest rates tend to have a direct influence on investments. This calls for re-evaluating various investments and taking a stock of various risks they are likely to pose in the long run. 

In a way, it is essential to take stock of the progress based on financial goals.

Keep an eye on asset allocation: The performance of an investment portfolio is directly proportional to asset allocation. There is a need to understand factors like risk appetite, investment time horizon and financial situation at the point of assessment. Factor in the changes being experienced while adjusting the investment strategy along with the asset mix. 

Diversification of assets remains a suitable exercise to reduce the portfolio’s volatility and potential risk in the form of certain assets not performing well. In case an investor gauges that the current asset mix is not serving the purpose, it calls for revising after due consideration of the financial circumstances and dynamics of the market. 

Kickstart with an overall portfolio and move on to the industry, sector and individual holdings to exactly understand any problem areas. For example, reducing allocation in equities and going for bonds could be considered in the present economic scenario.  

Rebalancing the portfolio: Rebalancing involves correcting the original allocation wherever required. It is also the time to value-invest through purchasing undervalued assets that hold growth potential. Portfolio performance will receive a boost this way while minimising the risk that is often associated with an overconcentration of any particular asset class.

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