Regularly review your portfolio to know if you are on track for your goals

If you have followed all the previous posts on setting goals and starting investments then you know that regular reviews must be necessary to check if you are on track.

📚 Table of Contents

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• Track progress of a goal
• A worked out example using a house down-payment goal

Track progress of a goal

Goals like cars, houses, vacations, college education costs and retirement expenses etc. all increase over time due to inflation. If the initial goal target was ₹ 10 lakhs today with 10% inflation, then in two years the goal value is expected to increase to around ₹12 lakhs. In reality, it could have become ₹ 12.5 lakhs or stayed close to ₹11 lakhs. In either case, a replanning is needed.

Markets do not go up in a straight line like a fixed deposit. Both equity and debt funds go up/down unpredictably and in most cases give a return very different from the expected return. If the target return was 8% for the first year but due to bear markets only 5% return was achieved, it would require additional monthly investments going forward.

The next process is rebalancing which is used for risk management to achieve one goal: over time, the risk of the portfolio needs to reduce as the goal comes closer. This is done via stepwise reduction of the equity exposure of the goal. Rebalancing:

• allows systematically buying low, selling high
• should be done at the portfolio level (all goals together to minimize trades and taxes)

See this detailed post regarding how rebalancing is done.

A replanning would require repeating the same process that was used to find the SIP amount

There are other ways of tracking investments at an asset level like the performance of individual funds which is covered here. Tracking progress of goals is one of the axioms of personal finance?.

A worked out example using a house down-payment goal

In the example above (which is from here), a house down payment goal is shown during the start of investing and a year later. The numbers move as:

• cost of the house has gone up from ₹ 20 lakhs to ₹ 21.30 lakhs (higher than the 5% initially assumed)
• SIP investment of ₹ 11,089 over one year has produced a return of ₹ 1.71 lakhs
• due to the increase in the cost of the house, the SIP amount has increased by ₹ 1,439 monthly
• the asset allocation has changed from 30:70 to 24:76 (change in the lump-sum equity figure w.r.t the corpus figure and will require a rebalancing based on the actual equity and debt returns)
• The SIP figures have also changed with more to be invested in debt and less in equity