Are your investments on track for your goals?
10 Jun 2021 - Contact Sayan Sircar
2 mins read
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
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
Our new Goal-based investing tool will help you to create and manage all of your goals in one place. Click the image below to get access:
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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
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Topics you will like:Asset Allocation (18) Basics (5) Behaviour (10) Budgeting (9) Calculator (10) Children (6) Choosing Investments (24) FAQ (2) FIRE (8) Gold (6) House Purchase (10) Insurance (6) Life Stages (2) Loans (10) NPS (3) NRI (3) News (5) Portfolio Construction (27) Portfolio Review (17) Retirement (20) Review (7) Risk (6) Set Goals (24) Step by step (3) Tax (10)
1. Email me with any questions.2. Use our goal-based investing template to prepare a financial plan for yourself
use this quick and fast online calculator to find out the SIP amount and asset allocation for your goals.
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This post titled Are your investments on track for your goals? first appeared on 10 Jun 2021 at https://arthgyaan.com
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