Before you invest get out of dirty debt
If you are confused as to why you are not adding to your wealth despite being a smart investor, it is most likely due to dirty debt. If you pay 35% on credit cards, 25% on P2P loans and 18% on personal loans, you are not going to create wealth in any meaningful way. Begin this year by using your surplus funds to get out of these high-cost dirty debt liabilities.
Review your emergency fund
When you are out of debt and your cash flow situation improves, the first thing you must do next year is to review your emergency fund. If you already have one, ensure that it covers at least 6 months of expenses. Don’t take risks with your emergency corpus and let it remain invested in liquid funds or short term funds where you earn small returns with minimal risk.
Tweak your insurance mix
You surely don’t want a situation wherein you feel smug about your investment plan and suddenly everything goes awry due to an exigency. Start by reviewing your insurance. Get out of inefficient ULIPs and endowments. Stick to pure risk covers and ensure that apart from life and health, your assets and liabilities are also adequately insured.
Confirm that you are saving to your potential
Most likely, you tried this over the last few years but did not get down to doing it. You need to increase your savings each year with rising income. One way is to convert your SIPs into step-up SIPs so that savings escalation becomes a habit and discipline. Also, take a zero-budgeting approach to your savings and see how you can run a tighter ship.
Review your mutual fund mix
Is your mutual fund portfolio in tune with your risk appetite and with the market conditions? Check that you are not loaded with long duration funds when interest rates are bottoming out. Ensure that you are not loaded with high beta funds when the valuations are well above the historical averages. These are some basic tests for next year.
Ensure your direct equity portfolio is in sync with 2020
This review should not only apply to equity funds but more specifically to your direct equity investments. Check that you are not overly exposed to a few sectors or themes. When the global economy is facing tumult, there is no point in being heavy on cyclicals. Sit with your investment advisor and make a portfolio plan for the year 2020 and implement it.
Create a perspective plan for multi-baggers
An investment of Rs10,000 in Wipro in 1980 would be worth Rs500 crore today! An investment of Rs10,000 in Kotak Bank in 1985 would be worth Rs250 crore today. These are not hypothetical stories but actual returns. How about betting a small sum on future multi-baggers? This year could be the time to take that big chance on equities.
Gold is a must have in your portfolio
You must be hearing about the virtues of gold in the midst of all this uncertainty. Year 2020 could again belong to gold, both as an asset class and as a currency. Ideally, your gold allocation should be in the range of 10-15%. For 2020, keep your gold allocation closer to 15%. Apart from returns, it could also be a good hedge for your financial assets.
Look at alternative investment options
Your alternative portfolio has a number of options. If you are not comfortable with complex structures, you have REITS, INVITS, P2P Lending and more. Look at all these options and look to allocate small sums to each of these asset classes to test waters. It will not only give your portfolio a kicker but also de-risk your portfolio, which could be cyclical by default.
Finally, ensure that everything fits into your financial plan
The first nine steps would be largely meaningless without the tenth step. All the above tips for 2020 must ultimately fit into your financial plan. The financial plan, after all, is the master document of your financial future. If any of the above ideas conflict with your broad financial plan, then your financial plan prevails. That is the big tip for 2020!
Happy Investing, Happy 2020!