Making Money is an Art, but managing & understanding it is a skill!

Managing Investments may seem like a tedious task, but it becomes much simpler when you can confidently understand & interpret your portfolio. A well structured Investment Portfolio reflects your financial goals, risk appetite & Investment horizon. However, many of us find it challenging to decode our statements & analyze performance effectively. Let us understand, how we can understand our portfolio which can help us to make informed financial decisions.

What is an Investment Portfolio?

An Investment Portfolio is a collection of all your financial assets like Stocks, Bonds, Mutual Funds, Gold, Real Estate & cash that you own. It is like a snapshot of all your finances in one frame. We all invest in various assets to diversify the risk & returns according to the time frame. But when we bring all the assets together, it is known as a portfolio. This portfolio helps us to understand where we stand in terms of the assets we own.

Key Metrics to Evaluate a portfolio.

While evaluating a portfolio, you can use key metrics like, total return, volatility, beta, benchmark comparison etc.

a. Total return: Total return aka absolute return is a comprehensive Measure of your Portfolio’s Performance. This measure shows how much your portfolio has grown.

b. CAGR: CAGR or compounded annual growth rate is a measure that determines how much your portfolio has grown year on year keeping in view the time value of your investment.

c. Volatility: Volatility measures how much an investors portfolio varies over time

d. Beta: Beta measures how sensitive an investment is to market movements.

i. A beta of 1 means the investment moves in line with the market.

ii. A beta greater than 1 means the investment is more volatile than the market

iii. A beta less than 1 means the investment is less volatile than the market

e. Sharpe ratio: This measure helps investors to understand how much return they get in comparison to the risk they take. A higher sharpe ratio is generally considered better.

f. Treynor ratio: This measure focuses on total risk adjusted returns. This is helpful for investors who want to minimize risk while still getting a high return.

g. Benchmark Comparison: This compares a portfolio’s performance against a relevant benchmark.

Aligning your portfolio with your financial goals

For Portfolio to grow, it needs to have a purpose & for that, a goal has to be defined & linked to your portfolio. Once you have set a goal & aligned with your portfolio, you will have better clarity on how your portfolio moves or performs with respect to your goals. As impulses crave in due to various factors like market volatility, sentiment shift & geo political events, it is natural to deviate from goals & lose control of your investment strategies. But this is where the skills to manage your portfolio comes in handy. (psst: the secret is to get hold of a trusted financial advisor who would guide you & your portfolio through the volatility)

Common mistakes to avoid

a. Timing the market: Avoid timing the market as that may not make you returns

b. Making emotional Financial decisions: Financial decisions based on emotional state may prove to be harmful as it fogs are decision making ability.

c. No clear goals: Not having clear & defined goals is a major mistake that most investors make. Have clear goals to let your portfolio grow consistently.

d. Ignoring risk tolerance: Investment has to be done keeping in mind the risk profile as over exposure to risk will definitely effect your portfolio.

e. Chasing performance: Chasing on past returns & taking current decisions is another major mistake that you can avoid. Returns are directly related to various factors like risk, valuation, market trend & cyclical movement.

f. Not reviewing portfolio periodically: Periodical portfolio review is the only key that will make sure your you are on track with your goals & not falling short or deviating from your goals.

To Conclude, Reading or understanding a portfolio is as important as building or managing it. If you are not sure what you are doing, then you will never get it right. So, make sure you are equipped with all the resources to interpret your portfolio. If this sounds complicated, then get in touch with your financial advisor who would take care of your portfolio.

SubhShanti Wealth Pvt. Ltd. is known for its expertise to read, understand & analyze an investment portfolio to provide custom made solutions to its investors. So, make sure you connect with Subhshanti wealth for a tailor-made solution for your portfolio.

To end on a lighter note,

Your Portfolio will look after you when you are old.

Happy Investing !!