A second opinion never hurts; not only in medicine but also in Personal Finance.
All of us try to save and invest to the best of our abilities to protect our financial future. We tend to invest in instruments that we read about or as suggested by our close family & friends, bank relationship managers, insurance agents or brokers.
None of these people actually think on your behalf to see if an investment suits you and your family’s goals, your risk profile and your time horizon.
The entire approach to investing is product-centric. So, all your investments are made without actually understanding why you are investing, what kind of product have you invested in and whether you will have enough money when needed in the future. People need to know the answer to “Am I OK?”… but unfortunately, this question is never answered and they are left confused.
The best way to get this answer is to get a second opinion on your investment portfolio from a qualified & professional Financial Coach who does Goal-based planning for families. lt is good to do a financial fitness regimen once a year to understand on a simple sheet of paper where you have invested, how much your net worth is, and whether it is enough for your goals.
If your answer to any of the following questions is NO or if you are unsure, then you would benefit from a second opinion on your financial portfolio.
- Are you sure your investments will help you fulfil your personal financial goals such as a child’s education, retirement, etc.?
- Is your choice of investments suitable for you?
- Is there a change in your life situation such as approaching retirement, inheritance, sale of a business, death in the family etc., that requires you to relook at your finances?
- Do you have a personal CFO who takes a holistic view of your financial life on your behalf?
The right professional will help you in reviewing your goals and investments by figuring out – What do you think is the corpus you will need if you were to take (voluntarily or involuntarily) slowdown in a few years?
What is the impact of inflation on your monetary needs?
Is your Health insurance sufficient or do you need a separate kitty?
Do you know what are your post-tax returns on your assets?
Do you have a plan for contingency for your business?
The aspects on which your finances will be analysed
| Areas of Planning | Financial Mistakes | Guidelines |
| Goal-based | Adhoc investments are not done c onsidering goals, time horizon and risk profile. | The Portfolio should be well-diversified across asset classes, as per the risk profile and investment time horizon |
| Asset Allocation | Overallocation to a particular asset class such as Real Estate and Debt Less/No Allocation to Equity Very high allocation to Direct Stocks | The Portfolio should be well-diversified across asset classes, as per the risk profile and investment time horizon |
| Diversification | Over diversification- Too many schemes (overlap of fund category) very few schemes- concentration risk | Ideal Portfolio- Maximum 7-8 Equity schemes, and 3-4 Debt Schemes |
| Portfolio Composition | lnvestments in illiquid PMS – Risky structured products, with high lock-ins, allocation to aggressive sector funds Mutual Funds in Dividend Option (DDT Impact of 29% in Debt and 11.64% in Equity) Higher allocation to investments in liquid/arbitrage but not needed for short term, need a very high allocation to a particular AMC | Even within asset classes, the portfolio should be diversified across different categories of funds. |
| Insurance Policies | lnvestments in costly ULIPs and Traditional Policies with high lock-ins Pension Policies to provide for Retirement Income, this income is taxable as per tax slab and inflation is not factored in pay-outs | Investments should not be mixed with insurance |
Along with a second opinion, a professional will help you in planning your future investments from the new money that you are generating, in the right way. There will be regular tracking and reviews of your portfolio.
It is always good to get a second opinion on your portfolio. For this, the single most critical decision to be taken is finding the right financial professional.
A second opinion on your portfolio gives you peace of mind and sometimes it can be life-saving.
Author, Meena Shriram, Head of Doctor Practice, at MFA Capital Pvt Ltd