The Hindu Business Line : Portfolio promises for the New Year

If you hoped to find five new ideas for your portfolio in this column, you may be disappointed. These suggestions are for a portfolio that you already hold.

Remember, if you have been investing in stocks, your portfolio is already reaping the gains from the ebullient stock market.

All you need to do is to stay on with sound investments and the market may do the rest. But a market that has a dizzying pace of its own can also induce you to commit more investment mistakes than usual.

That is why it is imperative that you avoid doing the wrong things even if you do not get every investment decision right. Hence, this New Year’s article on ‘investment bloopers to avoid’.

Beware the pied piper

Avoid the temptation of following the herd in pursuit of quick returns, especially in a portfolio that you are building for the long-term. By doing so, you may miss out on the opportunity of becoming an instant millionaire.

However, if you get lured by the prospect of quick gains during the bull run, your long-term portfolio could end up with stocks and funds that would never otherwise fit into your long-term plans.

Not only do your financial goals go out of kilter, you also hold the risk of losing capital, if you do not make the right exit moves.

Too many to cope

Avoid holding too many stocks or funds in your portfolio. With the bull market in full flow, you are sure to hear about at least one IPO or a new fund launch every week.

The lure of listing gains or buying into a fund at Rs 10 can load your portfolio with too many stocks or funds that may not only duplicate each other but also increase the complexity of monitoring it. Make your analysis of whether the stock/funds fits into your portfolio and suits your risk profile.

Concentration risks

If you’re happy that you do not hold an over-diversified portfolio, also ensure that you are not erring on the side of taking concentrated bets.

Holding too many stocks from a particular sector; having too many schemes from the same fund house or too many theme funds, may lead to concentration. Even across asset classes, you run the risk of concentration.

The market value of your equity investments may run up sharply disrupting your original debt-equity allocation. Ignoring the same may cause mismatch between your portfolio’s risk profile and your own risk appetite.

Who’s advising you?

Are you one of those investors who rely mainly on wisdom dispensed by friends or the broker you are familiar with? You may have to do more ground work from now on.

Remember that brokers and mutual fund agents also look to gain from every transaction you make. Apart from doing your own research, also ensure that their advice does not result in frequent churning of your portfolio. Frequent transactions benefit them, not you.

Unless you have a professional financial advisor who knows your risk-return profile well, it is best that you combine external advice with your own groundwork while you make investment decisions.

Balance the tax angle

Avoid investing merely with the idea of claiming tax deductions. It is more important that such investments are intrinsically sound and synchronise with your long-term financial goals.

Actively consider investments that do not provide any tax relief, but may provide returns that even make up for the lack of tax sops.

If tax is a worry, you can avoid getting heavily taxed by deferring your exit decisions, if possible, especially in asset classes such as equities and property.

This may change your capital gains status from short-term to long-term, reducing the tax rate. May your portfolio witness fewer/no mistakes in 2008!

More Stories on : Stock Markets | Investments | Young Investor

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page