Portfolio Management requires a partnership between the Advisor and the Investor and while the role of the advisor can be discussed in detail, there is some discipline required from the investor as well. I am listing below few points that investors can adopt for a superior portfolio performance:
1. Look at the bigger picture
Most of the times we spend a lot of times debating about a scheme in the portfolio, which is not doing well or one which has given higher returns than the others. What we ignore is the ‘Portfolio returns’, which is the most important number to track. Of course, the schemes are important but that should be the job of the advisor, when and how to deal with the scheme.
2. Understand the concept of risk adjusted returns
The best-case scenario for everyone is highest risk with lowest return and therefore people end up with unpleasant experience with investing in the markets. The simple theory is that anything which can give you more than a Fixed Deposit will have risk. Understand the risk, identify your portfolio needs and get an optimum portfolio made which can deliver the returns with minimum risk.
3. Avoid too frequent portfolio updates
This habit of constantly watching the portfolio is almost impossible to break, but once done; it allows the breathing space to the portfolio, the advisor and the investor. A multi-year portfolio can easily be viewed once a quarter and reviewed once in six months, unless there are changes required.
4. Don’t fall trap to guarantees or capital protection
If anyone really needs capital protection then he should have all monies in Deposits. To search for guarantees itself suggest your risk profile is low, hence don’t try and experiment with your hard-earned money.
5. Don’t compare yourself or your portfolio, you are different
Every investor has a different behaviour towards market events, towards risk and towards life. Don’t compare yourself as you are unique. You will react differently to the same market situation and therefore your portfolio construct will be different, hence producing different results.
6. Don’t base your decision on recent performance
3-5 year is a reasonable time to measure any returns. Don’t get carried away with high or low returns of any financial product in the recent times.
7. Write your Investment policy statement
It really helps when you sit down with your advisor and pen down your objective for investing, your asset allocation, your expected returns and the worst and the best-case scenario is mentioned. Review this regularly and make changes if required.
9. Keep the trust going
If you do not trust your advisor the you should immediately stop dealing with him/her, but if you do, then allow him/her to implement the strategy and let if work over a considerable period. Share as much financial information as possible, so that an optimum solution can be tailored made.
Don’t take advice of people who have nothing to do with the outcome: This is self-explanatory.