Financial Chakravyuha and the importance of exit strategies

economictimes.indiatimes.com:

This can be done through a thought-through glide path asset allocation, investing in something like a Target Date Fund or Balanced Advantage Fund in India to mitigate behavioral errors of staying invested in an expensive market. An investor, if confident, can do this on her own by allocating assets dynamically. But, first let us understand why it is so important to look at an exit strategy and portfolio rebalancing in the context of financial planning for a particular goal.

If not done correctly, this one misstep has the potential to derail a well-laid financial plan. I have personal experience (given that I use a financial advisor) on one related aspect of re-balancing. This was about my daughter’s education and fees to be paid for her admission to an undergraduate program abroad.

The goal year was 2020 and payout date was around July – August. As we all know, the pandemic played havoc with the markets in 2020 and raised anxiety levels for all. In my case, given that the goal year was 2020 around July-August, my advisor had moved the investments earmarked for my daughter’s education to fixed income one year in advance i.e.

July- August 2019. I was therefore able to pay the fees and had no anxiety with regards to the money commitment for the first-year semesters. Of course, my advisor had planned this in advance, but this strategy helped me during the crisis period of Covid which nobody could have predicted.

Portfolio rebalancing is important, to protect the corpus that has been meticulously built over the years. However, the method followed for this may differ. One may do this in a phased manner or can rebalance before a financial goal’s due date, like in my case, one year before the money was required.