When was the last time you analysed your investment portfolio? Many people look at their portfolio time and again to check their overall gains or losses but don't really analyse their holdings. A large number of their investments are done on the basis of 'tips' given by friends or relatives or agents trying to push products for which they receive hefty commissions or brokerage. This results in making ad-hoc investment decisions which are not in line with their investment objective and ultimately leads to cluttering of the portfolio.

Many people are of the view that by diversifying their portfolio, they can reduce their risk exposure. While diversification is good, over-diversification may not be very fruitful. You see, too much of anything can never be good. Over-diversification can not only limit your portfolio returns but may also harm your finances. Owning too many investment instruments that are not aligned to your risk appetite and time horizon may give you suboptimal returns in the long run. It can be difficult to manage and keep track of a large number of investment products. Moreover, paying fees and expenses for products that are not helping you to achieve your goals could lead to erosion of the value of your earnings.

Hence, it is imperative for you to adopt an organised and structured approach while handling your finances. Remember that, in order to do so, it is necessary for you to have a financial plan in place. For creating a financial plan, you must first define and prioritise your financial goals (such as buying a dream home, a car, children's education, their marriage and even your own retirement amongst a host of other things). Once you have done this, it is necessary to calculate the amount required to be invested for achieving each goal. The next step is to determine a suitable asset allocation pattern (based on your age, income, expenses, existing asset & liabilities, risk appetite and time horizon). Then you must analyse your already existing portfolio to check whether the investments already made are in accordance to your financial plan.

There might be some investments which have been constantly in losses or which are not in tandem with your financial plan. It is imperative to take corrective measures even if it means booking losses and re-investing the money (as per the investment amount calculated) in suitable investment avenues, before you do further harm to your future financial well-being. However, while you do that take cognisance of the exit load or surrender charges applicable.

While making fresh investments, it is necessary to make sure that you are investing in fundamentally sound and credible instruments, which have the potential to create wealth and achieve your financial goals. But it is also imperative to ensure that you are not too overweight on one asset class, investment instrument or its type. For instance, holding the same company through stocks and mutual funds; as this could again lead to over-diversification.

PersonalFN is of the view that a right balance in your portfolio is highly essential if you wish to meet your financial goals. While concentration may invite high risk, over-diversification would lead to low returns. Hence, it is imperative to create an optimally balanced portfolio consisting of investment instruments which have the potential to generate substantial returns and are in coherence to your long term financial goals. However, remember that merely creating such a portfolio will not help you to meet your financial objectives. You need to make sure that your financial plan is duly followed and reviewed from time to time to incorporate any changes that might impact your life and finances.

You see, we understand that not every person has the time or expertise to determine a suitable asset allocation pattern, create a financial plan, invest in sound and rewarding instruments and keep reviewing their plan. Hence, in such a case, it always helps to hire the services of an experienced financial planner who can walk you through the entire process of financial planning and building a suitable and adequately diversified portfolio.

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