Investment Objectives & Advice, Mutual Fund

Retirement Planning 5.0: 5 foundation pillars of personal portfolio

Recently i have tried to be more active on the social media, i noticed one common questions by lot of people again and again in various forums. Some of the questions are “Which is best Mutual fund to invest for X years?” or “Which is the best Multi-cap fund to invest?” etc. These questions reminded me one of my experience in year 2004. I was travelling back to my college after vacation and as usual during holidays, i did not have a reserved ticket for train. After reaching station, i bought a general ticket to my destination, went to inquiry counter and asked the upcoming fastest Delhi bound trains. He promptly responded that train is standing on platform 3, leaving in 5 mins. I ran to the train and boarded it successfully, What a relief!.

In few mins, Train started moving. It was a super-fast train so not only its speed was good but it was getting green lights at smaller village stations. I was very happy to not only caught the train but the best one. What a successful start of journey in those times. After few mins ticket checker came and looked at my ticket, he looked at me with expressions and  i could sense from 10 feet away that something has gone wrong. As i was young student, he smiled and asked that why you took this train. Firstly, this ticket is super-fast and your express ticket does not work on this and will need you to pay penalty. Secondly, This train do not stop at your destination. Suddenly from happiness my feeling tilted towards despair, TC was a kind guy he allowed me to stay aboard but asked to get down at one stop before my destination, which was still 100kms far. After struggles, i managed to reach my destination with at least a delay of 5-6 hrs and journey being terrible in buses/ autos as well as expensive than usual trip.

The reason, i shared the above instance, is that i forgot to personalize my journey and just made my conclusions on half knowledge and terms like fastest, available now kind of terms. Reaching the destination with delay was less troublesome for me as not achieving your own financial goals. So when you ask the best funds questions, it is half baked cake which just tastes poor as well as can create health issues. Our Portfolio of investments should be based on our personal journey/ goals alone. Below are the main foundation pillars which can help you personalize your portfolio to make sure you have a successful and comfortable financial journey.

5 Pillars of Personal Portfolio.png

  1. Financial Goals: Without knowing your destination, none of the journey’s can be successful. When we utilize money, we end up spending on various things like eating out, travelling, impulse buying, Even though our goal might be having wonderful retirement time, living in a luxurious house or having a big car or going for long holidays in Europe. This happens due to lack of clarity and planning of your own main goals. Make sure you write your goals down with details like Goal/ Purpose, Amount needed, Timing in years, Importance high vs moderate vs low/good to have.
  2. Analyse your capacity: Once your goals are written with clarity and details. We need to understand our capacity to save. We all have some fixed expenses like house rent/ EMI, educational expenses, house hold expenses like travel, phone, internet etc. Whatever money left after those expenses you can use that money in discretionary expenses or save it for your financial goals. This exercise helps you have a balance in your approach towards instant gratification vs delayed gratification to achieve your financial goals.
  3. Align Capacity & Goals (Return Required): Step 1& 2 can be done by anyone at their end, though the important step 3 will need some professional help to run you some numbers to align your goals and capacity. This will help you set reasonable expectations about your goals and also ascertain the required return to achieve our goals based on your saving capacity.
  4. Internal Factors/ Risk Assessment: Journey in financial landscape throws its own challenges but success comes by acknowledging them and mitigating them. These risks can be due to health, employment, accidents, market volatility etc. Financial journeys are more like family trip then individual, therefore important to understand the relevant risks and protecting against them by buying insurance, diversification as well as being cautious.
  5. External factors: There will be impact of external factors like market cycles, tax implications, regulatory or religious requirements. Investment decisions should consider the impact of your tax profile or your should always base decisions on after tax returns assumptions. There can regulatory angles of NRI vs residents or HUFs. Other factors like being Sharia compliant or economical social, governmental criteria (ESG).

If you skip any of these steps, you are basically committing the same mistake and increasing the chance of feeling the pain and struggle in your financial journey. Hope this helps you make a better informed decisions as well as guide you to ask right questions then just looking for best funds.

Happy Investing! Read more on Mutual Funds and Retirement Planning.

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