Posted by Palka A Chopra
It is often observed that some investors, accumulate investments from their savings in their financial journey without any specific aim or objective. Then these investments become a huge chunk of money with no specific tagging or correlation to financial goals. Thus, experts insist on investors having distinct portfolios for distinct goals. This is important because despite making saving and investing efforts, it is sometimes confusing to understand the purpose of savings.
Having a clearly segregated portfolio for each financial goal solves the problem and avoids confusion. Let ushave a look at some of the top reasons why one should have multiple portfolios for different goals: -
1. Ensures Proper Direction is given to Savings and Investment plan
When one creates separate portfolios for distinct goals, they get a better sense of direction and a clear understanding of where their monthly savings are going otherwise it may happen that oneis investing just for the sake of meeting their tax-saving targets. Creating a spate portfolio gives one a sense of satisfaction and motivation that every rupee,they are saving is enabling them to save towards their financial goals. The investment approach changes and one gradually becomes goal-oriented.
2. You do not Waste your Savings
The strategy of having separate portfolios is an important psychological trick. Because your goal is clear and is in front of you, you become more focused to meeting it. Once you have decided that your savings will be allocated for a specific purpose, you are less likely to withdraw that money for impulsive spending decisions. This brings certain seriousness to your financial planning efforts. Moreover, these savings start paying off at the time you need them the most.
3. You choose the right Investment Products
Every financial goal is different and thus each goal requires different level of planning. There is no “one size fits all” approach. For example - your goal is to accumulate funds for your child’s education in the next three years. In such case, you need to have a separate portfolio for the specific purpose consisting of fixed-income investments like fixed deposits and liquid mutual funds. In another case, you desire to purchase a house of your choice in the long run. So, you can invest your funds in equities that have a high risk-high return characteristic. Thus, it is good to have a dedicated portfolio where you can track and monitor funds with ease.
4. Lower Chances of Over and Under Deployment of Funds
Having separate portfolios means lower chances of over deployment or under deployment of funds. Since you a clear idea of how much you need to invest towards each goal, you will ensure that you are not investing too little or too much for a goal. A goal-based structure enables you to keep track at progress and you can monitor it at regular intervals. You can keep checking the accumulated funds against each goal.
5. Helps you De-Risk your Portfolio in Time
The risk yourportfolio isexposed to should change over the course of your financial life and protecting your capital is an important consideration while constructing an investment portfolio. One of the most popular methods is to de-risk your portfolio by changing the asset allocation in favour of debt. Hence, whenonesellsequity funds and reinvests it into debt funds, one can change the asset mix. This is easier when one has multiple portfolios.
Thus, by having separate portfolio for separate goals, you can gradually move your equity investments into fixed income. If you cannot adjust or postpone your goal, it may become difficult and it will also leave a negative impact on your planning for other goals.
6. Helps in easy Monitoring of theGoal achievement
Having separate portfolios for each goal precisely helps one calculate the exact percentage of how much goal has been achieved at any point of time. This also gives one a sense of where you stand in terms of financial planning and also motivates you to invest more. Monitoring your goal achievement also enables you to make mid-course corrections by postponing or reducing the outlay of your goal.
To sum up, creating separate portfolios for different goals will give you the much-needed clarity and understanding of your financial goals. It also helps you stay focused and constant monitoring enables you to reduce or increase your investments as per your convenience.
If you want to meet specific financial goals within asset time frame, each portfolio will be driven in a different manner and that is why it becomes highly essential to have separate portfolios. You can take professional guidance from industry experts or professional agencies in this regard.
With mastertrust’s expertise and assistance in goal-based planning, you can get closer to achieving your financial goals. Our services help you track investments, centric to each goal and lead to better asset allocation. It also matches your time horizon to asset allocation. Connect with us today for portfolio management services and a better understanding of investment portfolio in 2022.
As an experienced financial advisor and enthusiast in investment planning, I've had the privilege of guiding numerous individuals and businesses in structuring their portfolios to align with specific financial goals. My expertise spans various investment vehicles, asset allocation strategies, and the importance of tailored financial planning.
The article by Palka A Chopra emphasizes the significance of maintaining separate portfolios for distinct financial goals. This approach resonates deeply with my extensive knowledge in investment management. Let's break down the concepts highlighted in the article:
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Distinct Portfolios for Different Goals: The article advocates for creating separate investment portfolios for each financial objective, ensuring clarity and purpose in savings and investment efforts.
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Direction and Clarity in Savings: Segregating portfolios provides direction to monthly savings. It prevents aimless investing and ensures each rupee saved contributes toward a specific financial goal, moving investors away from solely focusing on tax-saving targets.
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Discipline and Focus: A clear goal in mind helps individuals stay focused on meeting it. It prevents impulsive spending as savings are earmarked for specific purposes, adding seriousness to financial planning efforts.
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Tailored Investment Products: Each financial goal demands a different approach. For instance, short-term goals like a child's education require more conservative investments (fixed deposits, liquid mutual funds), while long-term goals like buying a house might involve higher risk-high return investments such as equities.
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Proper Fund Allocation: Having distinct portfolios lowers the risk of over or under deployment of funds. It enables better tracking and monitoring of progress toward each goal, preventing misallocation of resources.
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Risk Management and Monitoring: Adjusting the asset allocation in portfolios becomes easier. For instance, gradually shifting from equity to fixed income as goals near completion helps manage risk exposure.
In summary, maintaining separate portfolios for different financial objectives aids in goal achievement, offers clarity in financial planning, and facilitates better monitoring and adjustments along the way. The article rightly emphasizes the need for professional guidance in aligning investment portfolios with specific goals, precisely what services like those offered by Mastertrust aim to provide.
As of my last knowledge update in January 2022, this approach aligns with conventional wisdom in investment management and financial planning. It's crucial to understand individual goals, risk tolerance, and time horizons while constructing portfolios, a principle that remains relevant for investors seeking to achieve their financial objectives in a structured manner.
