How frequent should you evaluate your portfolio?

How frequent should you evaluate your portfolio?

All of us have a tendency to keep finding what is the current valuation of my total investment i.e investment portfolio. We have seen lots of highs and lows in last 5 years. Some who got into equity investments just when the market started climbing upwards have made good returns and some who  after seeing these guys making money entered at near peak levels (late 2007) seem to have suffered notional loss.

In recent times talking of investment in equity funds is a big NO NO by most as many have burnt their fingers in last few years. Most of the investment in last year or so has come in debt fund particularly in FMPs and short term funds and reasons are simple – rising interest rate and bad return from equity fund.

Investors should always remember return from any investment product is a function of time. No asset class is bad if kept for long time. In short duration there could be loss or gain in any asset class be it debt or equity or real estate or gold but in long term ( > 3 years onwards in today’s scenario ) there will be always gain from all asset class , the only loss is OPPORTUNITY LOSS .

I would like to emphasise this Opportunity loss here. It could be reaction like “Oh Why did I not invest when blue chips were down, stocks were trading at low valuation and equity MF NAV was low. If I had invested I would have made 30% per annum “.

We have seen many such reaction of investors in past. The reason for talking this is investors today are in dilemma what to do when they see that their equity investment is not moving up and debt investment giving good return . So what should be the approach for evaluating the portfolio.

First look at your liquidity need in time duration i.e 3 month, 6 month, 1 year ……. i.e do you require money whatever the situation may be . If yes then don’t risk your money for fresh equity investment if time horizon is less than 3 years as of today.

While evaluating your portfolio please see the laggards i.e have you invested in any asset class or product whose performance in long term is consistently worse than benchmark or category average. If yes then you need to seriously consider of switching for better product. If the performance is bad in short term then there is need to look more from macro perspective i.e situation today in economy, sector etc. If it is a dark cloud hovering for only some time then you do not need to panic but keep patience.

Investment Portfolio have to examine in terms of liquidity need and macro factors ( in short term ) but in long term it is very clear that there are few assets which have always given better return than the other asset .

Once initially you have invested you must have thought that till what time you want that money to stay invested. This time duration was the main factor in choosing asset and product class which must have been considering historical return and risk vs return on time scale.

Yes frequent review is required to see whether chosen investment product is doing better or worse on comparative scale within its category or not. If there is some concern then need to be probed for reasons. If it is momentary then again one need to have patience but if the reasons are new and will be having long lasting impact then need for consideration of switch but such occurrence are very rare .

One very serious request to all the readers of this article is that please do not keep tracking NAV on a daily basis. Do review but once a month. Any investment done keeping long term horizon and with due evaluation of risk-return aspects need not be changed for reasons which are affecting performance in short term.

The best course for investment is always, if you have lumpsum money then either invest in Liquid fund and through systematic transfer plan keep investing a fixed part every month in good performing equity fund. So your time risk is diversified. If you have no intention to utilise that money in less than 3 – 5 years or have another resource where you can look in  and have conviction and confidence in equity then can invest in one go in some good performing equity funds with proven record of performance in long term . If there is some surplus generated on regular basis then select some good 8-12 equity funds and keep investing some portion in them regularly. If want to force investment discipline then start as low as Rs 500 or Rs 1000 and keep investing till you can in select good equity funds . “DON’T LOOK AT NAV ON DAILY BASIS ONCE DECIDED FOR INVESTMENT IN LONG TERM. “

To summarise--  (1) Invest keeping in mind your liquidity requirement (2) Remember in short term it is either loss or gain but in long term it is gain and opportunity loss (3) All asset class do well in long term (3) Whenever you invest, first evaluate risk-return aspect in short term / long term (4) Once invested have faith and conviction in your investment decision and don’t get influenced by short term factors until  and unless it has long term implications. (5) Do review but on monthly or quarterly basis.