<div><em>Creating separate portfolio for each goal will make your financial planning have a smooth ride, says <strong>Sunil Dhawan</strong></em><br> </div><div>Most of us might not be financially savvy. We won’t even have a plan to meet short-medium-long term goals. In the absence of a plan, the expenses incurred or the investments, both are largely on ad-hoc basis. Withdrawals from existing investments at the time of need could happen towards household or big-ticket purchase, thus jeopardising long term goals. </div><div> </div><div>For many of us, buying and selling of MF units based on market conditions and thus trying to timing the market happens. This is mainly because no earmarking for funds is there. If goal is longer, and funds are set aside irrespective of market conditions, the investments will continue and client won’t break investments. </div><div> </div><div>The need to create separate portfolios arises because not all goals are of the same tenure. Some like owning a home might be 3-5 years away while others like kids’ education may be 10 or even 15 years from now. Even kid’s marriage expenses might have to met about 15 years down the road. The retirement similarly may be 30 years in the horizon. When the tenure of arriving at the goal is not same, the kind of assets one requires to reach there differs.</div><div> </div><div><strong>What’s the benefit:</strong> Creating separate portfolios helps in clearly identifying the expense head. How much is required to be saved till what period is well-defined. There’s no overlap or duplication of portfolio. Most importantly, over or under deployment of funds towards that goal is largely taken care of. Investments towards each goal continues concurrently and hence reaching them is easy.<br> </div><div>Also, one doesn’t run the risk of overdrawing for the nearest goal leaving less for later goals. For instance, if one withdraws too much from child's education, the retirement goal could be jeopardised. Creating separate portfolios also helps to track progress during the review process. One might have to take corrective action then by either increasing investible amount or adding or deleting certain laggards from the portfolio. </div><div> </div><div>While creating separate portfolio, actuals amount is arrived at and no estimating or approximation happens. Exact amount gets to be known. Even inflation is taken into account. This helps to know exactly how much is required to be saved. </div><div> </div><div><strong>Role of assets: </strong>Over a longer tenure, equities as an asset class has historically outperformed all other asset classes and delivered higher than inflation returns. However, because of its volatile nature, goals that are to be met over medium term need less of equity and more of debt. Debt assets which include bank fixed deposits, post office savings products, bonds are less volatile thus helps in preserving capital. The risk of erosion of capital is less. Each asset has its specific risk-return matrix and hence a mix of them works better in achieving most of the needs. Further, while choosing products within each asset-class, consider distinguishing features like liquidity, basis and taxability of returns, lock-in of funds among others. </div><div> </div><div><strong>End note</strong>: Even while one creates separate portfolios, it’s important to cover risks at the same time. The risk of dying early and derailing the goals like children’s expenses may fall back on the family members. Get a pure term insurance plan for adequately providing for all the future goals. </div><div> </div>
