When, Why, How Of Portfolio Review

The most important thing to consider while reviewing your portfolio is whether it is still serving your financial goals, and whether the goals themselves require any revision

- JOYDEEP SEN

When we review our portfolio, we typically compare investment A with investment B, check their performance, and if needed, weed out the non-performing ones.

While that is relevant, what must be kept in mind is that our investment portfolio serves a bigger purpose. The review needs to be more holistic rather than an exercise where we just compare one investment with another.

Know The Purpose Of Your Investment Portfolio

The purpose of your investment portfolio is to serve your financial goals. It could be the oft-mentioned financial requirements, such as retirement corpus, purchase of assets, such as a house or car, children's education or wedding, and so on. It could even be just one pool of savings or investment, without clear demarcation of the financial goals, which you will use to allocate to your financial requirements later in life.

The objective of investing the savings is to optimise your returns over the holding period. The operative word here is optimise, not maximise. You would be thinking, why should I not get as high returns as possible?

The answer to that is that in order to maximise your returns, you will also have to maximise the risk that you are taking, which is not advisable.

For instance, you may consider cryptocurrency to maximise returns. However, there is no fundamental basis for investment in crypto, like there is in equity stocks and bonds. It is highly risky and avoidable. Hence, you should channel your money to investments that suit your risk profile.

Optimisation also means that given your framework of risk appetite, time horizon and overall objectives, you put your money into appropriate investments. Within your framework, you may look for relatively higher returns than the sub-optimal ones.

When Should You Review The Portfolio?