Make Your Investments Goal-Oriented With Focus On Allocation

Ashok Khivsara, 65, is a businessman and a father of two children and four grandchildren. Over the last 40 years, he has been in the business of trading steel and manufacturing doors and frames. However, he had no investments. It was at the age of 60 that he started investing. But, as it is said, better late than never, he made up his mind to invest in a regular and systematic manner.

In 2017, Ashok began his investment journey on his own without any professional help. He chose mutual funds to start with. Rather than going for a lump sum amount, he opted for systematic investment plans (SIPs).

He ensured that the SIP amount was deducted regularly without any pause. Ashok was happy to maintain the discipline in his investment approach, but after two years of continuous investments, he noticed that the value of his overall portfolio had got eroded by 15 per cent compounded annual growth rate (CAGR).

Ashok was perturbed but did not know how to go about identifying and resolving the problem. Since there was no one to guide him, Ashok jumped to the conclusion that he had probably made a major mistake by starting investments through SIPs.

At that point, one of Ashok’s friends advised him to take professional investment help and introduced him to mutual fund distributor Amit Bhandari, the founder and CEO of Paras Prime Wealth. This was mid-2019.

Bhandari understood the mistakes Ashok had made and explained some of the basics of investments to clarify the points.

Since then, there was regular communication between them, though no transaction took place. Ashok would contact Bhandari with some financial queries, on which he was properly advised with in-depth analysis about the benefits and risks involved in mutual funds particularly and equity markets, in general. Bhandari made sure that Ashok was well aware of the various nuances of investing so that he could take informed decisions.

Laying The Foundation Stone

The continuous interaction between the two helped Ashok gain immense confidence about his investments and his trust in Bhandari grew. In due course of time, Ashok’s doubts about mutual funds got cleared. Among other aspects, he understood the advantages of long-term and regular investments, which would not only help beat inflation but also create wealth. In particular, Ashok realised the meaning and importance of asset allocation, an aspect that was missing from his earlier investments.

Finally, in January 2020, just before the outbreak of the Covid-19 pandemic, Ashok decided to give the responsibility of his entire investment portfolio to Bhandari to be able to benefit from professional money management. This turned out to be a smart move for him as he was now relaxed as his investments were in safe and professional hands.

Patience To Bear Volatility

Within two months of starting investments with Bhandari, the stock market witnessed a steep erosion as India witnessed the Covid-19 outbreak and subsequent lockdowns that de-railed the Indian economy. However, even in such a difficult financial situation, thanks to Bhandari’s guidance, Ashok did not lose sleep. There was able navigation throughout the crisis and he stayed put with his investments with patience.

Gradually, Bhandari reconstructed Ashok’s overall portfolio according to the latter’s risk taking abilities and brought in the element of overall asset allocation.

Suitable mutual fund schemes were hand-picked considering Ashok’s various short-term as well as long-term financial goals. This exercise led to the investments being aligned with the goals, which was not the case earlier.

Bhandari also explained the importance of securing finances and life. He introduced Ashok to health and life insurance products to ensure that an emergency would not cause a dent his finances and investments remain on track in the long term. Ashok also learnt the technicalities of pre-launch IPOs (unlisted shares) and their role in earning high returns in the long run.

The result of all the measures taken to streamline Ashok’s investments is that his portfolio’s CAGR increased to over 23 per cent since the time Bhandari took charge of his investments two years back.

Measures To Streamline The Investment Portfolio

Even after two years of investing through SIPs, Ashok saw his portfolio losing value. A financial expert’s advice course-corrected his investments by filling in some gaps and changing some investments

A. Hand-Holding During Covid-19: The steep correction that took place within a short span of time during the 2020 pandemic was unnerving for investors. “I proactively held consultations with Ashok as his investments were only two months old when the crisis unfolded. I advised him to be patient as such corrections are part of the market and that investments should be long term,” says Amit Bhandari. He educated Ashok about the past market cycles and how investments can grow multiple times if investors stay put during tough times.

B. Asset Allocation And Suitable Schemes: Asset allocation  is the key for successful investment, says Bhandari. “I could see lack of diversification in his investments across asset classes. This was rectified so that not only would he get risk-adjusted returns but also inflation-beating growth in his portfolio,” he says. As per the goals and respective tenures, Bhandari suggested suitable schemes.

C. Goal-Oriented Planning: Investments without specific goals may prove hazardous. “First of all, we understood Ashok’s risk appetite and his financial goals. Thereafter, we aligned his investments as per the goals and suggested what amount he should regularly invest to achieve his goals in the stipulated period,” says Bhandari. According to him, goals keep investors focused and disciplined and instill patience.

D. Power Of Systematic Investment And Compounding: Understanding the power of rupee cost averaging is a must for every investor. “This essentially means that investors should be consistent with their disciplined investment through SIPs. This makes sure the cost of investments is averaged out during the course of the investment tenure,” says Bhandari. He also ensures that whenever the market cracks, Ashok buys more so that he gets units at cheaper rates which will be beneficial in the long run as the compounding impact kicks in.

Disclaimer

Financial Planning of Ashok Khivsara is based on the “personal opinion and experience” of Amit Bhandari, founder and CEO, Paras Prime Wealth. 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.

Amit Bhandari, Founder and CEO, Paras Prime Wealth