Suppose for years you have been putting your money in the market and one fine day on reviewing your portfolio you see instead of growing in value, your investment has depreciated and generated losses. What should you do now? Note that investment in the market does not always mean an upward line of success. There are bound to be bumps and this has been quite evident since 2022 began. With the Russia-Ukraine crisis, surging inflation, supply-chain issues, and more, the global markets are volatile and a recession is looming. In such a case, it’s essential to undertake effective wealth management to protect your investments. Here are some points that can assist you to recover your portfolio.
- Revisit your financial goals
Your financial goals may involve creating a corpus to keep the same lifestyle post retirement, expanding your business, setting up a charity for a social cause you care about, etc. Start by jotting the monetary value of every financial goal after factoring in inflation and time frame. You can take the assistance of a financial adviser or an investment planner to figure out how you can generate enough corpus for each financial goal.
- Determine your strategy for asset allocation
At times, you may get influenced by your emotions and invest in those asset classes suggested by your family or friends. Such investments may not match well with your time horizon and risk tolerance level. The fundamental step for correcting this is to decide your asset allocation strategy. Asset allocation strategy is the procedure of disseminating your investment throughout asset classes based on your risk tolerance level and time horizon. For example, as equities hold the potential to outperform asset classes and inflation by a wide margin over the long term, investment for your crucial goals maturing after five years must be in equities. Similarly, as equities hold the chances of being volatile over the short run, if you are risk averse by nature, you must opt for debt funds to mitigate your crucial financial goals maturing in three years. Such funds provide higher capital protection and income certainty than equities. Note that forming a well-planned wealth finance plan can generate risk-adjusted returns.
- Figure out underperforming funds
Even while your existing portfolio matches your asset allocation strategy and financial goals, you might view some of the funds or asset classes constantly underperforming their peer funds and benchmark indices. Thus, it is necessary to figure out the funds that are underperforming and redeem them for funds with higher potential to outperform others over a long time period. Start the process by comparing your existing fund’s performance with its benchmark indices and peer funds every year. Liquidate the funds that have continuously underperformed their peers and benchmark indices over the last three years.
- Restructure your investment portfolio
Once you are aware of your goals and asset allocation strategy, consider portfolio restructuring as per your life goals. Start by figuring out the funds that match your life goals and asset allocation strategy along with the capacity of outperforming their peer funds and benchmark indices. Compare the chosen fund’s performance over the one, three, five, and ten-year periods with its peer funds and benchmark indices. This will assist you in knowing if those funds have constantly outperformed their benchmark indices and peer funds in all types of market conditions.
Remember that previous outperformance in funds does not assure the same outperformance in the future. Striking comparisons will only endow you with a rough idea of how well the fund might face different market conditions in the future.
- Review your portfolio periodically
Once you have effectively decluttered your portfolio, ensure to review it periodically, once every year. Doing so would help you to rebalance your investment portfolio in alignment with the changes in your life goals, risk tolerance level, different macroeconomic parameters, and funds’ attributes. Regularly reviewing also assists in figuring out the underperformance in funds and correcting the deviations from the past asset mix in your investment portfolio.
What if you are unable to strategise steps for investment recovery?
If you are unable to strategise steps to get your investment back on track or want to know what went wrong, you can approach a financial adviser or investment planner. A financial adviser is a professional who will study your investments and wealth management strategies, assess incorrect moves, and devise plans as to what can be done differently to avoid losing out on more investments.