I have been doing financial planning for various risk profile category investor. Different Financial planners have unique planning process. However, when we tried to restructure the portfolio, we found few general observations which I tried to put below. It may be helpful for the other to understand the common mistake & take learning from it.
Few mistake -
- A Investor generally does not differentiate between savings & investment. Both are different; savings is the first step towards investment. Savings does not give growth in the portfolio. Just for understanding, if you are savings and putting in the bank it is a savings.
- Though Insurance is a critical part of financial planning but we treat insurance premium outgo as Investment. One need to understand that buying insurance is not an Investment. Insurance policy gives 1-3% return in US (p.a) which is failing to trump inflation.
- Since most of the cases, investor is overweight on Insurance & we face great difficulty to adjust his portfolio based on his risk profile. Stopping insurance premium is very difficult decision for any investor.
- You need to understand one point is that the distributor is not your financial advisor. Any distributor tries to push the product based on commission earned and forced selling by parents company. The similar point goes for Mutual fund too. However, since it is the investment in nature, it does not make much of the difference. We can restructure underperforming portfolio & invest in growth.
- Most of the cases, we found debt (especially personal loan, car loan). We found that people have a loan on one side and money ideal on savings account.
- Few cases, we found that, investor is heavy on gold. One has to understand the fact that, in longer term perspective, Gold has not given inflation adjusted return on a portfolio.
- Most of the cases, we found, real estate investment has hugely impacted. Most of the High Networth Individual (NYSE:HNI) has taken a beating due to high real estate investment. Secondly, due to distress market condition , we are not able to restructure it. You may read other article by the author at -
- Investor does not understanding the importance of your credit score and credit report
Warren Buffett is the world's most successful living investor have no issues discussing his biggest blunders. So, one has to understand the mistake that he has done and try to rectify these mistake by 1) educating himself 2) creating self risk profile.
I am seriously look forward for your suggestion. You may send the same to firstname.lastname@example.org
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.