Declutter a Mess Investment Portfolio, How?
As time spent at home increases, decluttering activities are getting more and more popular. For those of you who aren't familiar with the term, decluttering means curating stored things that don't add value or benefit to your life. However, decluttering isn't just about the things in your home. Purifying your digital life, by ditching apps or taking a break from social media, to streamlining money management with better budgeting are also included.
Just like your home and wardrobe, your stock portfolio also needs decluttering. Why trap your capital in such stock where there is an uncertain future? Then, how to declutter your investment portfolio? Here are the main steps you can follow:
1. Evaluate Your Financial Goals
Be as specific as possible on determining your financial goals, such as to build a retirement nest egg, to set aside money for your little’s university tuition fees. Next, categorize your financial goals according to a timeline, is it 2, 5 or 20 years? Doing this will give you a schedule of financial targets to work towards, which will focus and guide your investment efforts.
2. Categorize Your Various Investments
List down all the investments you have, organize by asset class, sector, and other factors to see what your asset allocation looks like, as well as whether or not you have diversity in across other areas, like industry and geography. Work out the annualized returns for each. Anything with an annualized return of less than 4.5% is a candidate for disposal. Why? See, the rate of inflation in Singapore spiking to 4 % earlier this year. Holding on to these investments won’t get you very far. It is generally agreed that anything between 6% to 15% annualized returns is considered good for investors.
3. Optimize Your Portfolio
Merge similar investments. While it is logical to keep the one with the highest annualized returns, you should also check the fees charged by each. Going with the one with the lowest fees will give you the greatest benefit in the long run. Align your portfolio with your financial goals. For short-term goals, start with a conservative profile to ensure liquidity and stable returns at low risk. For medium-term goals, switch to a balanced profile once short-term goals have been met to ensure discipline in investment. For long-term goals, switch to an aggressive profile for the remainder of your investing years, then switch back to conservative profile when the time has come for greater stability in your funds.
4. Allocate Your Investment Budget Accordingly
As a general rule, you should put more of your budget into short and medium-term goals, with the remaining going into your long-term goals. Why so? Because of compounding interest. With a long enough timeline, even a small amount can grow into a massive sum.
5. Set a Reminder in 12 Months
Check on your portfolio periodically, 12 months is a good interval, to see if you’re on track to meeting your financial goals. Make changes if necessary, but avoid the temptation to meddle, because fees and market movements will drag you. Add new investments, take profit, adjust your budget, etc.
Yes, decluttering your investment portfolio is no simple task. Sometimes it makes us forget to pay attention to other assets belonging to us that also need to be considered, such as houses. Not only is the house a place where memories are created, the house is a place to store valuables and become one of the assets whose ownership is obtained with extraordinary effort.
Having insurance for your home can be the solution. With Home Shield insurance from MSIG, buildings, contents and personal belongings of you and your family will be protected from loss and damage caused by various unexpected things such as fire, flood to strikes. Visit this link to find out more about how this insurance can help you achieve your financial goals in the future.
