The pandemic has shown a strong correlation between financial health and mental well-being. Those who had followed even the basics of financial planning — adequate life and health insurance and an emergency fund — were better placed to deal with ups and downs in their professional and personal lives. Not surprisingly, a Survey released on World Savings Day 2021 indicated that 80% of the respondents felt the pandemic was a wake-up call, prodding them to organise their finances for better financial health. One-third of respondents believe that more than physical health and relationships during the pandemic, the biggest stress generator has been their inadequate financial well-being.
Adequate levels of investment and savings, therefore, are critical for creating a virtuous cycle that can bring longstanding benefits – both health-wise and financially.
Annual Portfolio Reviews
Typically, while the beginning of the calendar year or financial year is considered the best time to review one’s investments and financial health, investors can begin this activity at any time of the year. Just as a timely diagnosis is critical to pinpoint a person’s health problems, it is equally essential to regularly assess your investment portfolio and financial goals to identify issues with financial investments and correct them at the earliest. The annual assessment should cover your progress, asset allocation, performance of different assets, and re-evaluating the insurance needs.
When investing, it’s impossible to time the market or predict the next winning asset or investment class. Diverse assets will react in different ways when hit by macroeconomic pressures and market uncertainties.
Disciplined and Diversified Approach
(Disciplined, Diversified Approach builds immunity)
Considering the vagaries of stock markets, a disciplined approach, where a person diversifies his or her investments in debt, equity, and gold, offers stability. A balanced approach through a diversified portfolio will help you build better financial immunity.
The approach to an investment portfolio can keep changing as per a person’s risk profile. For example, millennials or other young cohorts with few (or no) dependents will be more receptive to investments offering higher returns even if there are additional risks. Conversely, once an investor crosses the 40s, he/she will hold multiple liabilities, making the person averse to taking risks. Depending on a person’s risk tolerance, one can decide the type of assets to maintain (equities, real estate, gold, EPF, mutual funds, etc.) and the proportion.
Automating Savings and Investments
One of the most efficient ways to ascertain sufficient cash flows for investments or savings is by automating them. This can be particularly useful for people spending more than required. The annual review can highlight people’s spending patterns and help in assessing how to invest on a monthly, quarterly, half-yearly or annual basis.
Automated savings instils discipline. You will tend to first invest and then spend in such a scenario. It also ensures that personal biases don’t hinder the investment process.
Automatic transfers can be set up in the income cycle when there are sufficient funds in the account so that the allocations are made when adequate funds are available. Thereby, payments or premiums are made in time, avoiding the burden of late fees. Automation is one of the best ways to promote financial discipline.
Benefits of Online Aggregators
Mutual fund houses or online aggregators can assist investors through automated solutions that help create an emergency fund, identify risks, and invest to cover those risks. While wealth management was once restricted to well-to-do sections, online aggregators have helped mainstream such services to benefit retail investors.
Thanks to automated solutions, investors don’t view their portfolio merely from a returns standpoint but take the asset allocation perspective into account.
Generally, Indian investors are risk-averse, tending to keep their savings in inefficient investment instruments, leading to subpar returns. As a result, investors are better informed and understand their investments errors, leading to more robust returns through a well-diversified investment strategy. A healthy financial portfolio can then lead to greater personal well-being.
(DISCLAIMER: The views expressed are solely of the author and ETHealthworld does not necessarily subscribe to it. ETHealthworld.com shall not be responsible for any damage caused to any person / organisation directly or indirectly.)