Rebalance your personal finance portfolio for long term wealth creation

Due to market movements and changes in risk appetite one may need to have a look at his own asset allocation. Regular portfolio health check up can further help to take corrective steps in asset allocation.

At regular intervals we have our medical checkups done because we believe that “Prevention is better than cure“. Do you do the same with your portfolio?

Continuous portfolio health check up can help you achieve financial freedom while maintaining an asset allocation which reflects your risk appetite leading towards a smoother journey of long term wealth creation. An investment portfolio is always made on the basis of return expectation; however the delivery of this expected return depends upon taking & managing risk. So a portfolio check up should be broadly divided into performance check up & risk check up.

Steps of portfolio health check up:

1. Work backwards from your stated deadline: Apart from knowing the general thumb rule of asset allocation that the percentage of equity holdings in ones portfolio should be 100 minus the person’s age, risk profiling is equally important. Risk Profiling is a psychometric risk testing mechanism which helps to understand one’s true risk appetite. It is true that this rule holds good at a younger age as one has good earning potential & thus high risk taking capacity. As one grows older earning capacity decreases and thus risk appetite reflects the same. But a risk profiling test in today’s dynamic world helps to give a more specific approach. One should revisit his risk appetite atleast once a year as in a span of one year many changes can take place in his personal & professional life. An unexpected increase in earning potential can lead to an increase in one’s risk appetite or even some uncertainties can take place pointing towards a decreased risk appetite. If an individual aged 35 with high risk score and no immediate requirements has maximum assets parked in fixed deposits, he can consider investing in long term assets like equity and real estate.

2. Re-evaluate your financial goals: An investment portfolio should always be a goal oriented portfolio thus directing the investments to achieve those financial goals on a continuous basis over a period of time. But as time passes, some goals may not be as important as they were earlier or there can be an addition of an important goal. Investment should always be done keeping investment tenure in mind as goals can be divided into short term, medium term & long term goals. Thus one’s portfolio should also reflect the same to avoid any sudden jerk. Having a specific goal not only helps in achieving optimum returns but also helps in having right asset allocation and optimum diversification. Many clients keep funds in short term asset in hope of business startup and new house requirement goals without reviewing them periodically and due to which efficiency in asset returns is compromised. By revalidating there rationale for goals return enhancement can be achieved.

3. True diversification: Diversification is not a technique to be used to enhance return but a technique to earn optimum return at lower risk. While diversifying one’s portfolio across different asset classes, categories & strategies, one should note that these investments are not perfectly correlated. Some people end up ‘over – diversifying’ which actually turns out to be detrimental to one’s portfolio. It is thus important for investors to evaluate their portfolios and ensure that optimal levels of diversification are met.

Talking realistically, as per asset allocation one can diversify a portfolio into equity, debt, commodities & real estate. The allocation to the same can differ as per current market scenario & one’s risk appetite. The above mentioned asset classes can be further strategically & geo-graphically (developed & emerging markets depending upon the risk appetite and market scenario) diversified. It is rarely seen that all the major global markets and assets perform their best and worst at the same time. But do understand that global diversification comes with currency risk. Apart from the performance of the foreign market having a direct impact on one’s gains and losses, even domestic currency’s depreciation and appreciation against the invested currency would be reflected on an investor’s portfolio performance. Domestic currency depreciation would result in a gain and vice-versa.


But again your specific financial goal can help you make a right decision here; let’s take an example to have a practical understanding. Mr. Aakash has a goal of sending his children to the United States to pursue their further studies. As the client is specific about his goal it makes more sense to have a global diversification by investing in the United States as all currency related risks are reduced, as the proceeds from the investments can be directly channeled towards children education.

4. Avoid unnecessary risk by using balancing and re balancing strategies: An investment portfolio should be divided into core investment strategy & tactical investment strategy. Core holdings are the soul of an investor’s portfolio which are long term goal oriented investments & tactical holdings are usually short to medium term investments done to benefit from the current market scenario. The percentage of investments into different asset classes depends on several factors like risk appetite, past investment experience & future view on the asset class. Over a period of time due to certain changes and uncertainties in the market this percentage of asset allocation will have to be ‘re-balanced’ in a way to suit the real time market scenario as the old asset allocation would have become redundant. Last one month saw 10% fall in equity markets due to which asset allocation of many portfolio’s have changed and periodic review can help in rebalancing portfolio based on sudden market movements.

A person at the age of 35 may look rebalancing as acquiring more equity and person at 55 may look at trimming equity based on funds requirement at retirement.

Conclusion: It is known that 90% of long term wealth creation happens through correct asset allocation decisions. Periodic portoflio health check up helps in achieving long term goals. Risk and return are two sides of the same coin. When there is a bull market, it is expected return which drives the portfolio while in bear times its risk managing skills that drives the portfolio. But the best investment strategy would be one that has a trade-off between risk and return at any point of time. One should also understand that a clear goal oriented portfolio would help in reducing the expenses raised by churning ones portfolio. Complete focus on the portfolio asset allocation at the start of your investment journey will surely ensure a smooth ride towards long term wealth.

About Tarun Birani

Tarun is the Founder and Director of TBNG Capital Advisors Pvt. Ltd. which began operations in 2003. He graduated with a Master’s Degree in Commerce and has earned a MBA in Finance from ICFAI Business School. Furthermore, he is a Certified Financial Planner (CFPCM) registered with Financial Planning Standards Board India (FPSBI), which is the highest level of certification worldwide in the field of Financial Planning.

Enriched with 15 years of experience in the field of Financial Advisory, he has played diverse roles in organizations like RR Financial Consultants, IL&FS and Motilal Oswal. His bespoke advice in personal finance has transformed the lives of many busy professionals, entrepreneurs, business heads and families.


Over the years, Tarun’s achievements have earned him the reputation of a pioneer in the concept of Wealth Management and Financial Planning in India. He is a core member in Ascent and Financial Planners Guild of India (FPGI) and regularly contributes his analysis and views on topics like Behavior Finance and Personalized Financial Planning to a variety of established media houses namely Times of India, Economic Times, Mint, Moneycontrol and more. He has also been an esteemed panel member for multiple Wealth Management Forums on ET Now and Hubbis Wealth Forum.

This article was originally posted at moneycontrol.com

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