Finding the fit: How to tailor your financial portfolio

It is also beneficial to create several portfolios for your different objectives. For instance, one portfolio may carve out a certain amount for near-term liquidity needs, second portfolio may be constructed for long-term capital growth, and third portfolio can be for generating periodic income for household needs.

In building or choosing a suitable portfolio, you need to fully understand its component assets, the potential returns, and the risks involved. It needs to be consistent with your objectives, horizon, risk appetite, and sophistication level. You should also consider your personal preferences and beliefs in choosing investments.

Just like our measurements, our objectives, needs and circumstances also change. Hence, our investment portfolios need to be adjusted accordingly. You may have a new capacity and sophistication to expand exposure into new instruments or sectors. If certain securities or funds in the portfolio are under-performing for specific reasons, it may be beneficial for you to shift.
To keep your tailor-fit portfolio constantly working for you, conduct a periodic review. Assess whether it is performing within your expectations and understand what drove the gains or the losses. Always strive to educate yourself in markets as well. Establish benchmarks against which to evaluate the performance of your portfolio.

Whatever the situation, avoid simply chasing yields without understanding the mechanics, risks, and overall fit with your personal situation. Don’t get into investments just because everyone else does. Understand first why they went into it. Their circumstances, objectives, and risk tolerance may be completely different from yours.

Don’t get into an investment purely based on historical performance. Understand what factors led to such good performance, since they may no longer be true under current market conditions.

As a final advice, an investment portfolio is a personal choice. If your investment portfolio is keeping you up at night and is causing anxiety, then it may not be right for you. Work with something you can be comfortable with and the rest will take care of itself.

ANGELICA “JIKEE” REYES, CFA is Senior Vice-President and Head of the Metrobank Treasury Banking Group. She has oversight of balance sheet management and trading activities of the bank. Prior to her current role, she headed the bank’s financial markets sales, brokering, structuring and risk advisory units.

This opinion article is part of Metrobank’s Financial Education campaign series.

This article was first published on BusinessWorld.