Transcript of the Podcast
Hi This is your editor Arjun Parthasarathy speaking. The Friday podcast is a value add feature for the followers of Investors are Idiots.com. The brief podcast will select one topic for analysis and will be released every Friday.
This week’s topic is on “ Three easy steps to maintain your portfolio”
Portfolios that are well maintained will help you in optimizing the limited time that you have to take sound investment decisions. A well maintained portfolio saves you the trouble of spending time to sort your investments to put it into a decipherable order. How do you keep a well maintained portfolio? Use these three tips on maintaining portfolios to help you take sound investment decisions in the minimum amount of time that you have.
Three easy steps to maintain your portfolio
- Take the initial trouble of putting all your investments in an excel spread sheet. The columns you will need to fill are name of security, type of security (equity, mutual fund, FD, PPF, Insurance etc.), number of shares or units, current market price or NAV, current value of investment, which is number of shares or units multiplied by current market price. In case of FD, PPF etc. you can show interest rate of the instrument and amount invested.
- Categorize each investment. Equity shares should be categorized in terms of sectors, mutual fund units should be categorized in terms of type of scheme, whether it is equity, fixed income, hybrid or fund of funds. Others can be categorized in broad terms of fixed income, insurance whether term, ULIP or endowment and so on.
- Assign weights to each investment by dividing the investment value by the total portfolio value (at current market price not cost price). The total of all individual investment weights should be 100%.
Once you have finished the three steps of putting all your investments in a spread sheet, categorizing them and calculating their weights you will find that it is easy to take an investment decision. Let’s see how with an example.
For example if you find that a particular stock or a particular sector has a very large weight in your portfolio, say over 25%, it is time to relook at those investments carefully. Unless you have absolute conviction on those investments you should not have such large weights as any negative news on those investments can impact your overall portfolio badly.
On the other hand if you are carrying heavy weights on FD’s for example you are missing out on an equity rally or a rally in fixed income instruments such as bonds.
These are just examples but it shows you how by just opening the spread sheet you can pinpoint the exact position where you need to look closely at an investment.
Thank you for listening in. Have a good weekend.