[Insider] What do I, as an investor, worry about?

You may know me as a writer of ‘gyan’ on this blog :), a financial planner and an investment advisor. But you know, just like you, I am also an investor.

I invest money predominantly through mutual funds. In fact, my portfolio along with names and allocations is disclosed as a part of Insider (plus). This is to help my clients or you see what I actually do compared to what I say.

However, that’s not the point of discussion here. What I want to share with you that as an investor, what are the things I do or don’t?

What do I worry about on the path to my financial independence?

Here are a few pointers:

#1 Am I saving enough?

Saving enough is the most important input on the route to financial independence. I am not looking forward to some magic investment opportunity to deliver it for me. I rather focus on what’s in my control – my savings. Next, investing it right.

#2 Am I investing as per an asset allocation?

Simply put, it means I acknowledge my ignorance about how various investment classes will do well over time and hence distributing my savings over different asset types.

I go a step further – within an asset class, am I choosing the right sub class? For example, in equity, what portion do I have in large, mid or small caps? Similarly, what are my choices in the fixed income space or Gold or just holding cash?

I have defined my allocation based on my own preferences.

#3 Ok. I have an asset allocation. However, am I monitoring and rebalancing it periodically?

I completely acknowledge that asset allocation is the single biggest determinant of portfolio success. Studies have suggested that 90% + of the investment returns are delivered via asset allocation.

Now, if I want to make it work for me, I have to ensure that I stick to my asset allocation rules. It means that whenever the exposure limits are breached, I have to rebalance my investments from one asset class to another. Even though that asset class may be doing fantastically at the time, I have to take out money and shift it to the asset class where the exposure has gone down. {This is probably the toughest part).

Savings plus asset allocation discipline is the only way to make my portfolio win.

#4 What securities or investments am I choosing?

This is the decision about mutual fund, stock, fixed income instrument, cash in the bank / some liquid fund.

As we have seen this decision contributes less than 10% of my portfolio returns. And I don’t sweat about it a lot.

Unfortunately, this is the part where most investors spend inordinate amount of time and energy. Which fund to pick, which fund to change, identity under performers, look at star ratings, rankings and what not!

I am working with a very small and focused portfolio. I have 1 multicap fund, 1 mid cap fund, 1 small cap fund, 1 ultra short term fund, cash in the bank and an alternative investment. That’s it.

I select these based on focused mandates, experience and an understanding that the investment managers want to operate like one and not just for the sake of money gathering to collect fees.

#5 Am I timing the market?

No I don’t and I don’t want to. I invest regularly in my chosen investments in alignment with my strategic asset allocation.

However, if you are open enough, there are times, when you can sense good opportunities. I do that too and try and seize them.

Currently, I have a larger allocation to equities (65% to 70%) and within that a larger allocation to mid and small caps. This increase in allocation happened over the last few months. The equity exposure was close to 50% earlier.

I don’t change my funds frequently. The current funds have been a part of my investing list for 3 years + now. I don’t let salivate by looking at lists based on star ratings or rankings or top quartile performance.

#6 Am I sleeping peacefully?

You bet, I am. The goal is defined and the rules are clear. The investment instruments are picked on the basis of principles and not something random or too variable such as performance.

I am saving and investing regularly as also sticking to the discipline of rebalancing my asset allocation.

I don’t take action every day nor do I watch the markets (neither any business channels). I see my portfolio values once in a few months. Ups and downs are part of life as well as the portfolio. They will pass too! (See, this is the Gyan I mentioned about!)

I work with clients to help them structure their finances and investments and follow a similar approach in line with their goals and preferences .

Of course, I read. I write and teach via my blog. These days, in my extra time, I am learning to code. What else!

Between you and me: How is life for you as an investor? Do share in the comments to this post.