Diwali, the festival of lights, is fast approaching. It is customary for many Indian households to have a cleaning and redecoration session right before the festival. On a similar note, you, as a stock market investor, could also make use of this time to check your investment portfolio and make the necessary clean-ups. Here is a brief portfolio quality checklist that can help you objectively assess and analyse the performance of your investments.
1. Take a look at your asset allocation
The first investment portfolio check that you should ideally make is an assessment of your asset allocation. Depending on the investment strategy that you employed, your asset allocation might contain a mix of different financial securities ranging from shares to bonds.
Since there would have been a change in the price movement of these securities over the past year, the asset mix of your portfolio is also likely to have changed. And so, it is important to assess the level of change in your investment portfolio’s asset mix and take corrective measures, if any. This way, you can make sure that your investment strategy is in line with your financial goals.
2. Examine your holdings individually
Once you’ve done a broad examination, the next in line on the portfolio quality checklist is an in-depth examination of your portfolio holdings. Considering the fact that around two quarters of the year have already gone by, Diwali is the perfect time to do a mid-year check-up of your holdings.
A good way to go about the individual analysis is to pull up each of the investment options from your portfolio one after the other and do a comprehensive scrutiny. Some of the areas that you should focus on include the fundamentals and valuations of stocks, the credit ratings of bonds, and stock analyst opinions.
3. Do an overall performance review of your investment portfolio
After a thorough individual examination, the next logical step is to conduct a performance review of your entire stock market investment portfolio. The ideal way to assess the performance would be to compare the current metrics with those of the previous year.
While you’re at it, here’s a point that you should note. Since the stock market is an unpredictable environment, it is quite normal for your portfolio to not have performed according to your expectations. But if you start to notice a pattern or if you see that the performance has been languishing for far too long, it might be time for you to take corrective measures.
4. Assess the future potential of your portfolio
Once you’re satisfied with the current performance metrics of individual stocks and your overall portfolio, the future growth potential is what you should focus on next. You could make use of the current economic scenario, industry-wise data, and analyst reports and opinions to get a fair idea of what the performance of your investment portfolio would be like in the near future.
If the future potential of your portfolio turns out to be high, that’s well and good. If not, then you might have to switch it up to align it according to your goals and the current market scenario.
5. Evaluate the liquidity position of your investments
When it comes to stock market investments, liquidity is of utmost importance. And so, the final item on your portfolio quality checklist should be an objective assessment of the liquidity of your investments.
If you find that your investment portfolio consists of a majority of illiquid and long-term options, your ability to tap into your investments for funds during emergencies and contingencies would invariably be low. In such a situation, the ideal move would be to increase the amount of liquid and short-term investments to level the playing field.
With these checks in place, you can rest assured that your investment portfolio is neat and shiny, just like your home this Diwali.
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