As a part of my advisory, I look at investor portfolios and discuss their investment decisions. Almost every time I am surprised.
I recently looked at a portfolio of an HNI investor.
My learnings – 10 ways to destroy an investment portfolio. Read it carefully.
- Have 67 active folios in 45 different schemes.
- In debt funds, invest across the spectrum – liquid, short term, medium term, long term, gilt, income – you name it, he has it.
- The same in equity – flexicap, largecap, midcap, infra, opportunities, hybrid – you name it, he has it, including a Fund of Fund – Debt. It’s courtesy his portfolio, I am now aware that there is a fund called ICICI Moderate Fund. I am not sure if he knows the same.
- It’s a HUNTER portfolio.The scheme choices seem to have driven with only 1 parameter in mind – chase returns. The investor forgets that he cannot drive a car while looking at the rear view mirror.
- Attempt to seek safety with schemes of big brands.
- There is complete disregard to asset allocation. Two thirds of the portfolio is in liquid/debt funds. This for a person who intends to hold the portfolio for 10+ years and says he has a moderate risk appetite. And when the investor says that ongoing cash flow is not a problem.
- Create a portfolio to serve your ego than the real goal, say, retirement.
- Multiple liquid funds with multiple STP or Systematic Transfer Plan (daily, weekly monthly), Flex STP, Swing STP (I made that up), Upside-down STP (this one too), Switch was the investing methodology adopted. Interestingly, there are a couple of STPs into balanced funds too.
- In last 1 year, the investment amount has grown 10x (the GOOD part). The number of schemes has also gone 1ox (NOT so good part).
- In the first 4 years of his investment journey and until last year, the total number of transactions (including all) were less than 800. That’s an average of 200 a year, still high. The total number of transactions in just the last 1 year has gone up to 2700. That is 1900 transactions in 12 months.
The investor is a practising Doctor. His practice keeps him very busy and has little time available. Yet, he ventured into reading, understanding and studying on his own, selecting his funds and then investing in them.
He has partly worked with an IFA. But somewhere, he lost control. It has all become such a hotchpotch that he himself cant figure out his investment portfolio.
Ask about why he invested in a particular scheme and you get no specific answer. “It looked good at that time.”
Why so many schemes? Silence.
It is quite a zen-like answer for an un-zen-like situation.
What to do now?
The 1 way to save the portfolio – get an Advisor
Investment advice is not about identifying those 5 or 7 investment options. That advice is available dime a dozen, in fact, for free.
A real advisor does much more.
He helps you with questions on your investment decisions and helps you see the light in the darkness of your biases.
You are your portfolio’s biggest enemy. The advisor saves your from yourself.
The advisor helps you first save money (that can be lost through costly mistakes) and then make more money.
As Carl Richards says, the advisor is the one who stands in between you and your big mistakes.
The right advisor does much more than that to bring to your real 10x benefits.
What are you doing?
I am convinced most investors need an advisor. They are better off having one before they discover it is too late.
Well, the good part is that our investor has realised he needs help and has hired an advisor.
Between you and me: Have you worked with an advisor? What has been your experience?