Ever since the pandemic uncovered people’s financial blindspots, many questions have arisen regarding savings, emergency cash, and investing. Given the current circumstances, is only natural that these topics are trending.
However, since these areas form only a minor part of your overall portfolio, the amount of attention given to it is undue, to say the least. Only 20-25% of your portfolio accounts for overseas investments, equity allocation, or emergency funds. A larger portion of investments goes into safer instruments such as fixed deposits or insurance policies. These investments yield low returns and are usually a drag on the portfolio.
Why Focus on Minimal Returns?
Typically, the conversation surrounding emergency cash is on where and how much to invest. However, there’s been a shift in the conversational paradigm where people are now questioning how returns on their emergency funds can be maximized. One certain investor claimed that their bank had decreased the interest on its savings accounts.
As a result, they decided to shift to arbitrage funds, which, compared to ultra-short duration debt funds, deliver better returns. Remember that the purpose of your emergency fund is not high returns but rather quick access. The recommended holding period for an arbitrage fund is a year, and it can have long periods of low-yield returns, as well as exit loads.
Missing Out On the Gold Mine
By focusing your attention on minimal returns, you might miss out on enhancing profits on the larger chunk of your portfolio. This includes the fixed deposits, investment-linked insurance, as well as EPF.
If you wish to improve your financial stance, the following are the five main factors you should concentrate on.
1. Jumping in and out of investments won’t do you any good and will only raise the cost you’re incurring with no returns. Do your research before investing, and once you do, stick with the investments you’ve chosen. Consistency is the rule of the investment world.
2. Your health insurance and emergency funds come before any investment. Make sure you have enough of both before looking at other assets.
3. Avoid going for investments with tax deductions. Tax-efficient investments should be at the top of your list. Lesser taxation means you get to reap higher returns.
4. An investor should have 7-10 equity funds, on average, as it is imperative to have reasonable exposure. Sure, it all comes down to the risk profile, but the maximum you should reduce this is 4-5 funds.
5. High-cost instant loans can be disastrous for your portfolio and can even wipe it out completely. They cost 16 to 22 percent annually and don’t really do much for your financial life.
Bottom Line
Sure investing in international stock can be very exciting but, you can’t ignore your entire portfolio for the sake of 5-10 of it. Instead of being fixated on less important parts of your portfolio, it is advised that you take up tactical investments to boost your portfolio.
