Investor’s behavioral biases and industry’s unethical practices lead to portfolio disorders. These disorders lead to creation of sub-optimal portfolio. This in turn limits the portfolio's performance. Investor doesn't realize the impact in the short term, but in the long term, this leads to investor dissonance when investor understands the massive difference between the wealth created by his/her portfolio and what could have been created, had portfolio been an optimal. This is what differentiates wealthy and prosperous investors from intelligent investors. Your portfolio is also victim to one or all of these portfolio disorders and these are the reasons for its under-performance
FIXED DEPOSIT DISORDER
This disorder is present in more than 90% investors’ portfolios as their portfolios comprise of FD and FD-type of assets owing to investors lack of understanding and risk averse nature. Even if you have one rupee lying in FDs, your portfolio is a victim of this disorder. What most do not realize is that this disorder destroys the portfolios’ returns and over a period of time reduces wealth in terms of purchasing power as FD return doesn’t even beat inflation. There is no reason to lose to this disorder given that there are safe debt funds available that have better returns, better liquidity, and better tax efficiency. Also, one must understand time horizon and take some risk while investing for long term.
ASSET ALLOCATION DISORDER
This disorder is also present in most investors’ portfolios as most portfolios are sub-optimally created. Portfolios are either too risk averse or too risk prone. Also, asset allocation follows a trend. More and more equity allocations are made and when markets are high and rising, and more debt allocations are made when markets are low and correcting. This disorder is avoidable with better understanding of when and why one must invest in equity and when to stay away. Simple rule to follow is, “if horizon is more than 10 years, equity is the best investment and must be adopted confidently. However, one must be cognizant of valuations while doing any lump sum investments when markets are expensive. At expensive valuations, one must practice caution and follow systematic investing. Debt investments are important as these act as speed breaks, and help in portfolio re-balancing apart from fulfilling the liquidity needs for short term goals. Like a portfolio that is skewed towards debt is not the optimal allocation, similarly a portfolio which is 100% skewed towards equity is also not the best and optimal - it’s like driving a car without breaks!
OVER DIVERSIFICATION DISORDER
This is the most common disorder present in every second mutual fund portfolio as investors like to keep all types of flavors in the name of diversification. Like there is a saying that “Excess of everything is bad” so is over–diversification. Good and consistent performance is not easy to achieve and is rare. Adding more and more products increases the probability of portfolio losing this as good performance gets balanced with bad performance.
INVESTMENT EXPENSE DISORDER
This is another disorder, rather an evil that could be very harmful to the portfolio especially if the portfolio comprises of expensive funds that are added without proper research and with the motivation of high commissions. Hidden commission may be is less bad in terms of cost, is worse in terms of bad advice that it motivates as bad advice leads to bad decisions which creates permanent loss.
PRODUCT SELECTION DISORDER
This is not as common as other disorders, but is prevalent in form of lock-in products in some portfolios. Market is flooded with hundreds of good as well as bad products. One bad product spoils the portfolio returns especially if allocation to bad products is high. So, scouting the market and careful selection of right product is very crucial to better performance.
Refreshing departure from the stereotypical pattern
I have never had a satisfactory experience in the past with financial advisors from big institutions . Their emphasis was to off-load products attractive to their interests even though they were not conducive to the client’s portfolio. Advice Sense Wealth Management provides a refreshing departure from the stereotypical pattern. They study your needs and jointly develop a portfolio to meet your long-term aspirations. The products are well researched, service is provided for the transactions to happen in the e-mode. Their website provides comprehensive information not only on the portfolio status, but of dividends, short and long-term gains, tax implications and history of transactions. This is the kind of service I have been looking for – expert advice and service available all the time without having to worry about timelines . It is nice to have one place to come to, without being intimidated by relationship managers from larger institutions. This is what financial advisors should be.
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Discipline and Integrity
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I have been investing in mutual funds through a bank, and then when I discovered cost advantage of direct investing, I started dealing with online platforms that provide direct mutual funds. I also dealt with asset management companies directly. But, in all experiences, I saw huge gaps and/or conflict of interests. While banks were always keen to just sell a product for commission, online platforms were not capable to understand my risk preferences, and were not actively involved to review portfolio level performance. They were claiming artificial intelligence, but actually were lacking even in common sense! AMCs have a limitation of bias towards their own products. Advice Sense Wealth Management addressed all these issue. They provided flat fee, no product bias, advise objectively basis client risk and product risk adjusted performance. Their approach is right and is the way to go for this industry. I have recommended this to my colleagues and will happily recommend to all.
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