Key Lies In Prudent Asset Allocation

Radhakrishnan Balaji had held key technical positions at various prestigious organisations in the US before he flew back to his homeland. A computer science graduate from the University of Madras, he was previously the Vice-President at EverBank Financial Corp, Jacksonville, Florida, heading the technical team for mortgage back-shop operations. He has also been a technical architect for finance products at priceline.com, a leading travel company based in Stamford, Connecticut, and a technical lead at Covansys, Detroit, Michigan.

He is now the founder and Chief Executive Officer of KavNiya Technology Solutions, a software development company named after his two daughters, Kavya and Nithya. He met Vijayakumar from Wealthy Worthy Creators in a random and casual meeting, but the connection has stayed strong. Flying back from the US with some accumulated savings meant a prudent financial plan to channelize these savings prudently into different mutual funds. Vijayakumar held several interactions with Radhakrishnan to know his risk profile and financial aspirations. Since mutual funds are reasonably popular in the United States, it was not difficult to convince Radhakrishnan to invest in mutual funds.

As a sincere investor, Radhakrishnan maintained proper asset allocation & created a balanced portfolio based on the goals. However, Radhakrishnan was worried about the portfolio in the first three years, as the family portfolio was not yielding desired results. He used to communicate his concern for stopping his SIP. Vijayakumar shares, “as returns were sub 8 per cent and for meagre returns, Radhakrishnan did not consider it worth taking the risk and continue the SIPs and overall portfolio. However, we kept reminding about daughters’ education overseas and the specific goal to continue the SIP.”  Radhakrishnan recalls on this, “I was not much convinced to take risks for little returns. Seeing my emotions towards my wish for my daughters’ education abroad, Vijayakumar suggested a large-cap equity fund for the goal. Then, we started SIP in ICICI Prudential Bluechip Fund, which has helped me fund my daughter’s education in the US.”

Besides having equity funds in the portfolio, Vijayakumar also suggested a suitable allocation to liquid funds, high-quality debt funds like Banking & PSU debt funds, etc., to balance the investment strategy. Exposure to debt funds lent some stability to the portfolio and enabled Radhakrishnan to switch to equity at lower valuations effortlessly when markets corrected significantly. While he was slightly worried after the markets corrected in March 2020, a couple of interactions with Vijayakumar helped allay the fears. As a result, he continued SIPs during the pandemic and even increased the SIP for his family members post the fall. Apart from some lumpsum investments into equities, Radhakrishnan also started a Systematic Transfer Plan (STP) to switch his investments in debt funds and continued STP in equity mutual funds during the pandemic year.

With markets rebounding well post the market correction last year, the investment portfolio is shining, and Radhakrishnan is pleasantly delighted with his progress.

With his long-term financial goals in sight, Radhakrishnan continues his investment plans through SIPs and STPs. Helped with prudent asset allocation and investment strategy under Vijay’s guidance, Radhakrishnan has been able to effortlessly steer through the market movements.

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Radhakrishnan Balaji sums up his lessons learnt

1. Asset allocation always helps: Radhakrishnan has always maintained a prudent asset allocation mix, where equities have been used for long-term wealth creation. In contrast, debt investments have been used to stabilize the investment portfolio, albeit with reasonable returns. He shares, “proper asset allocation allows optimal exposure to different assets individually, while on a combined effect basis it helps reduce risk and aids in protecting returns better. Combining these different assets ensures that the portfolio created will complement the strengths of these asset classes while fixing the probable weaknesses. For example, as equity markets turn volatile, the debt element in your portfolio will provide steady returns, thereby helping in downside protection.”

2. Stay prepared to capitalize on Market Opportunities: Keeping cash for investing at a reasonable time has an important role to play. It not only protects the portfolio downside when different assets are performing poorly like they performed during the pandemic but also enabled the deployment into equities at relatively inexpensive valuations. Radhakrishnan also used the correction times to switch from liquid funds and ultra-short duration funds to equities through STP.

3. Link your investments to specific goals: Investors should select mutual fund schemes for investment according to their financial goals and investment horizon. Some schemes and asset classes may be suitable for the long-term, like equities but may not be suitable for the short term. Further, some schemes may mitigate systematic risks for the investors, like international funds, which can be used towards financial goals denominated in foreign currency, etc. Such funds have an investment portfolio comprising of foreign stocks, which are denominated in foreign currency. However, such schemes are available for investment in Indian rupees. Any depreciation in Indian Rupee increases the rupee valuation of such a portfolio. Thus, such funds act as natural hedges for foreign currency goals, like child’s education in a foreign college, etc.

4. Keep reviewing the portfolio periodically: When investing in markets, it is also vital to practice patience, as markets can be volatile in the short term & most importantly, one should trust their Financial Advisor. However, one should review their portfolio periodically at least once a year with their advisor. One, it helps to identify the underperforming schemes, and secondly, it provides an opportunity to rebalance the investment portfolio for the targeted asset allocation. However, one should be careful that the investment decisions are not clouded by any recent underperformance of specific schemes but instead be based on the long-term performance. Further, there may be times when the financial goals may change due to increased expected costs or a change in aspirations. One can also use such periodic reviews to align the portfolio with any changes in the investment strategy or financial goals.

Disclaimer

Financial Planning of Radhakrishnan Balaji is based on the “personal opinion and experience” of Vijayakumar N  from Wealthy Worthy Creators. It should not be considered professional financial investment advice. No one should make any investment decision without first consulting their advisor and conducting research and due diligence.

Vijayakumar N
Founder - Wealthy Worthy creators
Website - www.vbuildwealth.com