One of my clients recently complained to me as he said- “Manoj, you have not done any changes in my portfolio for a long time. My banker was telling me that you need to be active with your portfolio otherwise your portfolio wont grow.
I said, I reviewed your portfolio with you twice last year and found there is absolutely nothing to change. Then I told him an analogy. You go to your doctor for a regular check up and your doctor says all reports are good and there is no problem with your health. Doctor then added that you need to continue practicing healthy habits like exercise, good diet, enough relaxation and a happy frame of mind.
Would you be happy or sad in such a situation? Obviously you should be happy. Would you say, this doctor is useless as he has not prescribed any treatment? No, most probably you will be joyful that you don’t need any medication or surgery. This is so relieving, isn’t it !
Like doctor’s regular check ups, it’s important to review your portfolio regularly. For most of the portfolios, once a year review is good enough. For some bigger or complex portfolios, one may review them half yearly or at the max, quarterly. But more than quarterly review is generally useless unless there is some extraordinary situation like market collapse etc. Even in a market collapse situations, knee jerk reactions like selling your portfolio is a sure recipe of wealth destruction.
Too much portfolio review and transactions will result in-
1) Waste of time.
2) Losing peace of mind.
3) Incurring unnecessary expenses like exit load and capital gain taxes.
4) End up getting bad investments because you may tend to invest in hot funds/stocks which may be primed for a downturn.
Further, like doctor’s analogy, in most of the times you may not need to do any change in your portfolio. All you need to do is to continue the healthy practice of continuation of SIPs, maintaining your budget for rightful expenses as well as for savings and focusing on your job more so that your income grows and results in better savings.
I call this approach of portfolio management, “alert passiveness”. While you remain alert and watch your portfolio regularly, you take action only when it warrants. You review your portfolio on a regular interval and take action on asset allocation and portfolio diversification. But avoids unnecessary transactions.
Your banker may try to prove her worth by giving you advice for regular transactions. She may also lure you by pitching hot funds or new fund offer (NFO) and ask you to replace with your existing portfolio. But most likely, your meticulously built goal based portfolio is good to achieve your financial goals.
You dont need treatment all the time. Only regular check ups are good enough.
Manoj Pandey
CFP
