Why You Should Not Ignore Personalized Asset Allocation While Investing
Apr 24, 2018

Author: PersonalFN Content & Research Team

Asset Allocation While Investing

If celebrity investors lose a few millions, it seldom matters to them.

But for you it may be a significant loss. 

This is because each one’s risk appetite, financial circumstances, investment objective, investment time horizon and financial goals are different, and there choices of investments vary.

Mohan is a head honcho. He is the promoter of a mid-sized chemical company which does an annual turnover of over Rs 500 crores.

He is a very ambitious investor too. He rarely places money in bank fixed deposits. The worth of his family-owned assets——gold and real estate—— runs in multimillions. Of late he’s been investing only in equities.

Being a businessman, Mohan understands the risks involved in various businesses and industries. For higher returns, he takes calculated risks. He has a brave heart. He consults numerous equity analysts and wealth management firms, but personally decides what to buy and sell.  

Nishi, Mohan’s secretary manages his office schedule and also keeps track of his investment activities. Mohan relies heavily on her promptness and meticulous record keeping.

Mohan always encourages his staff, including Nishi, to invest a part of their salary regularly. He also offers a group healthcare insurance to his staff and their family members.

Nishi trusts her boss’ opinions and judgments blindly.

Whenever Mohan bought any stock in a significant quantity, she would do so in her personal account.  And at times, he actively tells her about risky bets she should avoid.

Nishi’s husband works in a software company and takes no active interest in investments. He has left it to Nishi. He knows Mohan is a big fish and Nishi follows him in investments. When Mohan invested Rs 5 lakhs, Nishi invested Rs 5,000 to 10,000 in the same company.

In November 2017, she received Rs 20 lakh as a part of her share in the ancestral property. Nishi took the boldest decision of her life that day.

As Mohan invested Rs 25 lakh in a company being bullish, Nishi too didn't miss out the opportunity. She invested the entire windfall income of Rs 25 lakh in that company –she bought its shares.

(Image source: pixabay.com)

Soon after Budget 2018 was announced, the market nosedived. And the stock fell 20% in a week. One morning, she got the rudest shock of 2018.

Mohan asked Nishi to sell his shares in the company. She followed his instruction and sold his shares.

Now, by no means could she afford to lose Rs 4 lakh in her personal account, and decided to stay put.

A week past, and equities recovered 5%-6% ––she was relieved a bit.

However, her joy didn’t last long. 

In the second week of March, the stock she held tanked another 20%—taking the total loss to 35%. And that day Nishi broke down and anxiously checked with Mohan if there was something wrong with the company.

Nishi told Mohan (her boss) about the whole incident (that she had mirrored his decision to buy, but did not sell).

He lambasted her for being so casual about her money. But he equally felt sorry for her.

Thereafter, he introduced her to one of his friends who was a financial planner for counselling.

The Financial planner explained quite a few things to Nishi. Asset allocation was one of the most important amongst all.

To begin with, the financial planner explained the difference in Mohan’s risk profile, investment objectives, financial circumstances, and   financial goals and as compared to her.

Mohan can afford to take higher risk and go horribly wrong a few times given his financial circumstances and loss absorption capacity”, the financial planner said.

The financial planner also highlighted the need for Nishi to strictly follow personalised asset allocation.

“Let me first explain to you what’s asset allocation”, the planner continued.

“In simple words, asset allocation is the composition of various asset classes in your portfolio. In Mohan’s case real estate, gold, and equity assume almost the equal weights. And he has about 10%-15% of his portfolio in fixed income assets”, he explicated. 

“Other than fixed-income assets, all the rest carry a high risk”, he added.

“Can you afford to take that risk?” …the planner asked.

“Then what are the factors I should look at to arrive at the right asset allocation”, enquired Nishi.

“Good question!” he replied back

He told her to primarily consider the following before making investment decisions:

✔ Investment objectives

✔ You financial goals

✔ Number of years left before financial goal/s befall

Risk appetite

✔ Current financial situation—income, personal and household expenses, assets, liabilities etc.

✔ Future career plans and ambitions

It was an eye-opener for Nishi.

The financial planner gave her a risk assessment form, jotted down her goals, and requested for another appointment to present her personalised asset allocation and a financial plan.

Exactly after a week, he turned up again in Mohan’s office to define her personalized asset allocation and to draw a financial plan.

In the meanwhile, even equity markets recovered sharply and her loss which was previously to the tune of 30%, reduced by 22%.  

The Financial planner advised her to par down her equity exposure once she recovered all her losses, which he expects would happen sooner or later. All fresh investments will be made as per the personalised asset allocation plan.

Mohan requested his friend to help each one of his employees to define their asset allocation and drawn a financial plan and bill him for that.

Mohan cared for his employees; he understands the importance of retaining talent. And his employees do appreciate his generosity and give their best at work.

All of them now invest a small portfolio of their earnings in equity-oriented mutual funds through Systematic Invesment Plans (SIPs).

Did you just realise that you too have been investing in ad hoc manner mirroring someone investment decisions, and have ignored your personalised asset allocation and financial planning to accomplish your life goals?

It’s never too late to take correct actions.

Reach out to Financial Planner today!

Want PersonalFN to help you define your asset allocation and draw a viable financial plan?


Do not hesitate to call us on 022-61361200.

You can also Schedule a Call with our investment consultant, or even drop a mail at info@personalfn.com and we will be happy to help you.

PersonalFN is a SEBI registered investment advisor. We will handhold in the journey of financial freedom and help you accomplish your envisioned financial goals.

Happy Investing!

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Aug 24, 2019

What is fee for offering financial planning for an individual, especially investment through mutual funds portfolio

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