Technical Analysis

Tracking macros

B Govindarajan | Updated on January 23, 2018 Published on August 23, 2015

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It is an established norm that investment in various asset classes has to be tailored to suit investor needs. The past is definitely an indicator of the future when it comes to tracking the performance of a scheme or an asset class.

But there are many macro-economic factors that can thwart achievement of financial goals within a particular timeframe. Investment advisors, thus, have to broad base their knowledge to understand the general macro-economic scenarios and align them with the risk-reward perception of their clients. Many investors take decisions based solely on past performance. If suitable reallocation is not done when macro factors turn unfavourable, it may result in the client falling short of his objective.

Helping investors understand

Some believe that tracking the changing economic scenario is a waste of time for retail investors. It is true that one should remain invested for the long run to wipe out short-term volatility; the resultant compounding effect of the return will take its own course for the investment and financial goals to be achieved.

While investors think they are investing, they are actually speculating. This behaviour is due to their ignoring the macro factors. That explains why Indian investors park money in gold and bank deposits. Even when they tend to invest in the capital market, it is by and large for the short term.

Financial advisors therefore, have to hand-hold their clients and gain their trust, help them understand macros so that they arrive at suitable asset allocation while maintaining realistic expectations.

Financial guidance

Many investors enter the market when the risk is maximum and the euphoria levels are high. When the market falls, it is only denial, fear and panic that drive investment decisions. People tend to sell their holdings prematurely without considering the fundamental factors, sometimes even ignoring their investment objectives.

Maximum opportunity can be tapped when the market bottoms out, but few people make use of such an opportunity as they feel that the market may decline further. This is when a financial advisor can add value to a client’s portfolio by guiding him through the market cycles. Educating the client periodically will prevent him from exiting investments prematurely or taking decisions that are not in line with his objectives.

Ideally, financial advisors should engage with their customers more actively to understand their cash flows, personal and financial goals — for proper asset allocation and rebalancing of the portfolio. This will ensure both the financial planners and the client are on the same page.

There is also a need to keep abreast of not only the product performance but also understand regulations and policies to gauge the investment cycle better. This will help enlighten their clients on the strength of fundamental investing. Broad understanding of the economy will make investors more confident about their choices. It will also enable them understand portfolio reallocation in tune with the changing economic factors.

The writer, a certified financial planner, is AVP, Cholamandalam Distribution Services Ltd

Published on August 23, 2015
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