Sweeten your investment mix with what makes sense
Over a period of time, most of us acquire shares, mutual funds, and bonds for different reasons. While some of our investments are central to our long term plan, a lot of stuff that we own does not really have a method to it. One of the first things you need to do is to cleanse this area. You may have purchased a sectoral fund that is neither delivering returns not fitting in. Get rid of it and deploy the funds more meaningfully. You bought stocks where the underlying story appears to have changed. Don’t worry about the losses. It is as important to get rid of laggards as it is to acquire winners. Each time you sell a laggard, you generate liquidity for using it more productively.
Consolidate and streamline all the financial aspects
This is more from the point of view of simplicity. If you find that you are holding a portfolio of 25 stocks, ask yourself if you need so many stocks. Create a core portfolio in consultation with your financial advisor and get rid of stocks where there is no conviction. When it comes to mutual funds, ensure that every unit you hold is pegged to a goal. Anything not pegged to a goal has to either be pegged or deployed elsewhere. That same applies to holdings in bonds and insurance policies. If you are holding 3 endowment covers, the best you can do is to consolidate them into a single term policy with a bigger cover.
It is time to cleanse your offline activity baggage
While some basic documentation is essential, let us admit that we have truly shifted into the online space. This calls for an attitude shift. Cleanse your mind of the belief that only physical copies are accepted. Shift to an online trading account. Ideally, use your mobile app to trade on the go. Avoid physical contract notes and let all your key documents be online with cloud backup. Keeping copies once a year for audit purpose is fine. But don’t overdo your obsession with physical records.
Cleanse your debt; especially your high-cost debt
To quote a fitness analogy, taking on too much debt is like consuming too much of carbohydrates (carb). It is a lot of fun and provides instant gratification. But scratch the surface and it adds little value. In the long run, it is actually counterproductive. Treat your debt like you should treat your carb intake. Firstly, get rid of high-cost debt. If you are going to pay 35% a year on credit cards and 20% on personal loans, you are never going to create wealth. Each time you make an investment allocation ask yourself if closing an existing loan will be more productive. When you repay credit cards, you actually earn 35% on your investment.
After cleansing the past, create a clean future
Cleansing cannot be a one-time exercise. It is more important that you create a structure that enables you to keep your finances clean in the future. Here are a few pointers! Ensure that your mutual fund investments are tagged to goals and stay that way. All your investments must either fit into the core portfolio (tagged to goals) or a satellite portfolio (for alpha generation). Set limits of how much EMI you will pay as a percentage of your income and have a plan to squeeze maximum savings out of your income. Beyond cleansing, setting the tone for a cleaner future is equally important. Otherwise, you are back to repeating this routine exercise each year!