Here’s How To Review Your Portfolio

Portfolio review is an important activity in your investment process, and doing it the right way can contribute significantly to achieving your investment goals over varied time horizons. That’s why you must have clarity in how to go about monitoring and reviewing your portfolio through your defined time horizon. [EasyDNNnews:PaidContentStart]

While selection of suitable funds ensures a great start to your investment journey, monitoring the progress of the portfolio keeps your investment process on track, which helps you avoid any disappointments in future. However, considering the risks and uncertainties associated with market-linked products, you must be prepared to face challenges from time to time. 

Remember, reviewing the portfolio is an on-going process, and the key is to avoid either tweaking the portfolio in a hurry or remaining invested for years in the hope of an improved performance from funds performing poorly for a prolonged period. Also, avoid looking at the NAVs of funds every day as it can make handling volatility in the market quite stressful. 

Considering that reviewing the performance is an on-going exercise, you need to put performance in perspective and understand the reasons for non-performance. As an investor, you must know how to differentiate a fund manager’s poor performance from the stock market’s poor performance. Remember, in a falling market, a fund manager can’t be expected to give positive short-term returns. In fact, if the fall in NAV of the fund is lesser than the peer group, it demonstrates the fund manager’s ability to protect your investments during turbulent markets. 

Besides, reviewing fund performance in a haphazard manner can compel you to make some irrational investment decisions that could have a significant negative impact on your financial future. Therefore, you must follow the right process to do so. 

Here are some guidelines you may consider while reviewing the performance of your portfolio

• Your focus should be on how the portfolio is performing from the viewpoint of your personal goals. If you are uncomfortable with the level of volatility that may have occurred while achieving that performance, you must have a close look to ascertain if your asset allocation requires any realignment. 
• It’s a proven fact that different segments of the market, i.e. Large-Cap, Mid-Cap and Small-Cap, perform differently at different times. As the tide shifts in favour of a particular segment, the performance of funds focusing on that segment improves dramatically. Therefore, making changes in the portfolio every now and then based on short-term performance of a particular segment can backfire in the long-term. The key is to focus on your allocation to different market segments as that helps in earning returns commensurate to your risk profile. 
•  Another important aspect is to compare the performance of the funds with their benchmarks as well as with the peer group average over different time periods. If a fund is not keeping pace with its peer group for, say, 4-6 quarters, it makes sense to consider exiting from it and move the money to another fund that deserves a look from long-term point of view. By doing so, you can enhance your chances of improving returns over time. 
•  As is evident, you must hold a fund long enough to evaluate its performance. Avoid making the mistake of either holding onto funds for too long or exiting in a hurry. Remember, a wrong decision can either expose you to the risk of missing out on good rallies or getting out too early, thus missing out on potential gains. 
• You must do a thorough analysis before making a decision to sell. Many investors err on the side of selling funds without giving them time to show what they can do. That’s why proper selection of funds becomes an important activity. If you select well at the start, you can avoid these situations occurring frequently.

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