7 Strategies to Simplify Your Investment Portfolio & Make it Less Stressful

so when I sit with friends people typically in the early 40s late 30s at some point of time the discussion definitely gravitates towards Investments personal finance or the stock markets that's absolutely fine but what always surprises me is the range of products that we as a group are invested in real estate fixed deposits gold bonds mutual funds stocks small case PMS Futures and options P2P lending crypto fractional real estate and many more in fact one of my friends is invested into 14 different products but when I asked him to recall the exact nature of the products or to give me an estimated annual yield this man drew a complete blank I'm sure some of you can relate to this so complexity has this habit of building up over time and so in this video I'll be presenting some tips tricks and techniques that you can apply to simplify one's investing believe me there's nothing here that you don't know but what I hope to achieve here is to kind of organize your way of thinking and there are seven areas that one needs to address here let's begin the first box is our behavior and it's often our emotions our biases that introduce significant complexity in our investing unfortunately this not only messes up the portfolio but also leads to suboptimal decisions for example the period from 2020 until 2023 has been a strong one for the Indian stock market and if you've made 30% return then it's probably on par with what a lot of others have made but then many individuals including this client sues is referring to seems to have a become very confident overconfident of his abilities so that's Behavior flaw number one and secondly there's obviously a recency bias because while the client remembers the last 3 years where he made 30% he seems to have forgotten the previous two years 2018 and 19 where he might have struggled to make even 10% returns so not recognizing one's bias adds complexity to investing and to simplify things here are three highly effective strategies that everyone should employ number one is education and I highly suggest you read every article on this website fs. blog especially the section on mental models and decision making the second simplification way is to ignore noise and to follow a system for most things which includes your asset allocation sip the selection of funds the style of investing Etc and the third technique which is very specific to stocks is to have a checklist which clearly addresses why you are buying into that particular company what do you expect from it over the next 3 to 5 years and what it would take for you to sell that stock as I said earlier none of this is rocket science but the application of these steps can be the difference between a simplified and complex form of investing so once again accept who you are recognize your biases and instead of running behind everything follow a system or checklist in one of my consultation calls the person I was talking to was a little upset about the markets not now this was maybe a year back when the Nifty had fallen by 10% and throughout the call this man was simply venting out he wasn't abusive but you could you could make out from the things that he wasn't very pleased and that's when I asked him hey what percentage of your portfolio is in equities to which he replied 5% so to put it mathematically all this bickering was for almost nothing and as a portfolio his worst case scenario is that he hadn't made any returns over the last 3 to 4 months the larger picture here is that this person was missing the point that wealth creation is actually more about portfolio building now I've already posted a few videos on asset allocation and portfolio creation so we won't go there but to quickly recap and from a simplification perspective here are four things that everyone should consider doing firstly split your portfolio into a core and opportunity segment and in my case it's 80% core and 20% opportunity number two Define a portfolio split for your core portfolio and I personally prefer 60% in equity 30% in debt and the remaining 10% goes into gold rats and invit if you're not sure what invits are then please don't read my newsletter Yes you heard that right don't read about the 12% yield opportunity that I've discussed in the newsletter until you've understood the product itself and finally point three in our portfolio simplification exercise is to rebalance regularly now to prove a point I took this image on asset returns that was published on mint last month and I applied it to my own portfolio setup so this is my targeted asset allocation the way I'm most comfortable with and for the year 2013 when I apply the returns across assets my weighted portfolio return comes to 1.1% as you can see here 2013 was an year of extremes with International Equity doing extremely well while investments in midcaps small caps and gold struggled actually I want to show something interesting here and if I take a marker and map out small caps through these 11 years we can clearly see the volatile nature of the ass ET even gold shows up in a zigzag pattern and so does midcaps and international equity which clearly points out to the up and down nature of individual assets and why it is important to diversify your Holdings to put this in numbers if in January of 2013 I had invested my entire wealth in large caps that is the Nifty 100 then after 11 years it would have given me a return of 12.6% in comparison my Diversified portfolio would have delivered an almost similar 12 .3% without rebalancing and with annual rebalancing it would have come to 12.1% but with slightly lower volatility so while diversification and rebalancing might look like a lot more work but honestly once you get a hang of it it won't take you more than a couple of hours every year to get this right right so many of us have our sips running and every month some money gets deducted from a bank account and we allocated some units so there is convenience there is transp y rupee cost averaging one doesn't need to time the market and over time it all adds up and helps us build a nice big wealth CPUs in the same context one can simplify their ppf investing by setting up a standing instruction the same goes for insurance premiums credit cards NPS and so on in fact automation can also be applied during withdrawals and using anwp feature a systematic withdrawal plan one can pull out money from one of the mutual funds at regular inter similarly for moving funds from one scheme to another a systematic transfer plan or STP can be utilized and instructions can be given to the fund house to move x amount of money from One Fund into another at particular intervals my point is to the extent possible simplify your investing by making use of automation facilities which are already inbuilt into many Financial products correct me if I'm wrong but every year or two we tend to receive some sort of lumpsum money this can be your annual bonus some fixed deposit that has just matured a wire transfer for some site project Etc and every time this money comes in most of us get into a state of confusion on what to do with this money I know it's a personal call on how you want to use your money but at least as a framework and to keep investing simple I think there are primarily three deployment decisions that need to be taken here the first option is to apply this lumps of money for pre-planned activities like buying a house house paying for something like a laptop Etc so because you've already thought through it and because a house or a laptop or a car isn't requirement one can simply go ahead and apply the money there the second option is to keep this money as debt in which case and at least from my perspective some part of the money should go into a one or twoyear FD or an ultra short duration debt fund and the rest of it can be invested in a long duration product like a Target maturity fund and the third choice is on deploying this money into equities which is where the STP feature can be utilized wherein the lumpsum money is first kept in a debt or Arbitrage fund and then a fixed amount of money is moved into an Equity Fund of your choice on a regular basis again you can tweak this as you please but to keep things simple and manageable do consider creating a similar decision tree so that there is no confusion when such a lumps of money does come in in my case I've been using this framework for the last five six years now and for me it's worked perfectly another source of complexity is this habit of chasing the best performing mutual fund I'm sure a lot of us have tried this me included and I now realize there are two problems with this firstly the set of best performers keeps changing every year so if you do this for the next four five years you'll probably end up with 8 n 10 different schemes in your portfolio in fact I tried this on flexi cap funds and had I picked the top three performing schemes over the last 5 years I would have ended up with a basket of nine funds which at least I would have had trouble tracking and managing efficiently the second problem and a more important one is that schemes which do well so quartile one the top 25% not many of them retain their top performing fund status in the subsequent years to prove this with actual data I pulled out the performance numbers of flexi cap funds over the last 10 years I classified each scheme on which quartile they belong to and for every scheme which was in q1 I then mapped its quartile status in the succeeding year what came out from the study is that schemes that were in the top 25% of any year Well only one out of every four funds remained in quartile 1 in the subsequent year in fact a top performing scheme is more likely to become a quartile 2 Fund in the very next year with 37% of flexi cap schemes meeting that fate over the last 10 years and almost 40% of these best performers moving into Q3 or Q4 in the very next year so what is the solution for this I went back to the data I looked at the overall 10-year performance and very clearly flexi cap funds that have an AUM of 10,000 cres or more well noticeably all of them seem to have delivered performance within the same range of course I'm not suggesting that you'll make 18 to 19% by doing this but just to Pro a point I want to particularly point out to SBI flexi cap which has a 10year kager of 18.2% but remarkably in all those 10 years it entered quartile 1 only once in 2015 has spent the remaining 9 years in quartile 2 three or four and yet it has a more than acceptable 18.2% kager to show for its efforts my point is and what this data shows is that overtime performance distortions get minimized and establish schemes even though they have different investing methodologies tend to offer similar returns over the long run so don't over complicate your investing by jumping from one scheme to another as I have been guilty of doing in the past and stick to a set of four five schemes of different investing Styles and be invested in them for a long period of time so I came across this post on X the social media platform and someone had written while a stock price can go down to zero I had haven't heard of any mutual fund going down that path now I'm not trying to compare the virtues of mutual fund investing with stocks I'm sure there is a place for both in our portfolio but The Core theme Here is to be more careful more studious and precise when it comes to picking stocks so here are some ways by which one can simplify and improve stock selection number one don't get excited about every stock in fact Studies have shown that a core holding of 10 maybe 15 high quality High conviction stocks is not just easier to monitor but beyond this number one doesn't also gain much in terms of diversification benefits of course this doesn't mean that you shouldn't or you can't take advantage of some tactical opportunities that I share in my newsletter but to simplify and optimize a portfolio of 10 12 15 stocks is good enough okay point two is to always have an investment thesis that is a clear rational for every stock in your Investment Portfolio and this is where you answer questions like why are you keen on buying that stock how does the company make money what is the growth potential what are the risks and so on and so forth and the third simplification technique when managing stocks is to have your own investment criteria this part is important because there are like hundreds of investing strategies many of which I have discussed in this Channel and the reason I gave you all this is to build your awareness is that there are many roads to investing success but eventually you'll have to pick your own path for example I know this person in the family who starts his selection process using a simple three-step criteria question number one will the business be around 100 years from now number two does the company have a large and growing economic mode and the third part of the puzzle is does this company have a history of responsible and shareholder friendly management these three questions are his way of looking at stocks and I'm quite certain that if you have your own simple criteria or checklist it'll go a long way in choosing quality stocks in putting your mind at ease and more importantly in allowing your Investments time to mature and the last and by no means the least important step in fact it's a very important step which is the tracking reviewing and consequently the regular cleaning up of your portfolio it all starts with tracking and there are two of doing this a you can put everything in an Excel sheet and figure out a system of updating values at regular interval or you can do what I do and utilize the services of an online portfolio tracker like value research online or in money or impr profit Etc so choose what works best for you but the idea here is to have everything in one place as it not only simplify the management of your portfolio but it also improves the review process personally this track and review has helped me in many ways and continues to do so in terms of me understanding how is my wealth growing which schemes are doing better than others what's my portfolio asset allocation like what kind of rebalancing I need to do etc for example there was a time when I had no tracking process and before long the equity schemes my portfolio were over 30 number which was obviously becoming very difficult to manage but by using an online tracker and by reviewing the portfolio on a regular basis so I would review every 6 months so by tracking and reviewing and by consolidating schemes within the same category I not only managed to bring down the number of funds but even the portfolio performance had gone up because I started to become more selective in my choices in addition to getting your asset allocation right a track review and cleanup process ensures that you have sufficient money to achieve your immediate and long-term goals you can identify growth opportunities and that feeds into your opportunity portfolio one doesn't take unnecessary risks like overexposing oneself to a single sector stock or asset class by keeping track you can save taxes by using techniques like tax loss harvesting you end up taking less risk and most importantly an organized investor is a peaceful and confident investor so as I said it before the seven areas I've put forth today is not something that's new to you but I hope by putting it into different sections it gives you a better understanding of what to do and how to do it if you have other ideas on simplifying your investing please do share them in the comments box below once again thank you for your time and I'll see you 3 days from now until [Music] then

Channel: Shankar Nath

Views: 112,365

Keywords: shankar nath, beginners buck, shankarnath, sankarnath, akshat shrivastava, pranjal kamra, soic, finology, rachana ranade, sahil bhadviya, parimal ade, vivek bajaj, labour law advisor, warren buffett, investing, investment, nifty, sensex, stock markets, mutual funds, simple investing, simplify investing, simple portfolio, simple investment portfolio, simple investment, simplify investment, investing for beginners

Id: Z-5bPzpQjK0

Length: 16min 50sec (1010 seconds)

Published: Wed Jan 24 2024