Check How Good Is Your Investment Portfolio?

A protractor is a semi-circle-shaped instrument that comes in handy in measuring angles. Its use needs a lot of concentration because even a tiny mistake can lead to errors. For instance, if you are off the mark by just a single degree, then after one foot, you would have missed your target by 0.5 centimeters. After a mile, the deviation will be a more visible 28 meters. And if we draw a line from the equator to the north pole (over 6,300 kilometers), then the 1-degree error would lead to a 100 kilometers deviation.

Planning and implementing your financial goals is a lot like using a protractor. We know our destination in most cases. We broadly know how to get there. But the path we take is never a linear process. We almost always deviate from the plan. And we don’t know when, where and how much is that deviation. As a result, we often fall short of our goals.

In this context, it always helps to have a mechanism that can indicate when we are straying from our investment plans. Well, we have a solution: ET Money portfolio health.

This blog will explain the features of ET Money portfolio health and how you can take maximum advantage of this feature to build a better investment portfolio.

What Is The Portfolio Health Feature?

You would have come across a hard taskmaster superior at some point in your career. This person keeps track of what you are doing, expects big things from you, and doesn’t shy away from pointing out your mistakes. In a similar context, ET Money’s portfolio health feature is your investing taskmaster.

ET Money portfolio health keeps track of your portfolio. It compares your performance with a top-performing model portfolio. And it points out the gaps you need to plug in your investment portfolio.

For example, the portfolio health feature points out the errors in asset allocation, portfolio composition, sector allocation, etc. These are valuable features because avoiding investing mistakes can have a massive bearing on your net returns. After all, the fewer mistakes you make, the higher your returns.

Let’s understand in detail how portfolio health feature comes in handy.

How To Use Portfolio Health Feature?

The basic starting block for portfolio health features is understanding the investor’s personality. When we use the word “personality,” we are looking to extract different types of information. For instance, we look at scenarios such as how the investor reacts to specific events. Does the investor plan to invest more when the markets are down? When does the investor typically redeem their mutual funds or investments in stocks? And what proportion of the portfolio is equity or debt at different points in time?

The last point (the equity or debt allocation level in your portfolio) is a vital part of our modeling. Let’s understand how this works with an example.

Say your portfolio presently has an equity allocation of 58%. Now, 58% in isolation can mean you are a balanced investor. Or, it can also be that you are an aggressive or a very aggressive investor.

Therefore, we have created different model portfolios for various risk profiles to put the asset allocation percentage in perspective. For example, our model will label you as a ‘conservative’ investor if you have less than 8% allocation to equities. Similarly, we will consider you as a ‘balanced’ investor if your allocation to equities is in the range of 9-28%.

Source:Etmoney:Dated:21-02-2022