Priya is a committed investor, who has put together a diverse pool of investments over time. She is confident about her product selection, having mitigated risk by spreading her investments across numerous products, with small amounts. Despite her strategic approach, Priya realises that her portfolio isn’t delivering substantial returns and lacks protection from market volatility. Additionally, accessing funds when needed proves challenging, and managing the portfolio becomes a time-consuming task. Priya is left wondering where she has gone wrong and how to realign her investments.
Priya’s portfolio exhibits signs of over-diversification, a condition characterised by numerous, small, fragmented holdings that reduce the impact of successful investing.
While Priya diligently assessed the merits of each product before investing, she overlooked aligning the investments with her specific needs and goals. There’s a possibility that certain products are not suited to her investment goals, or that she has excessive concentration in a particular type of investment, elevating the portfolio risk.
To remedy this situation, Priya needs to review her portfolio to cater to her unique requirements. First, she must determine the allocation to various asset classes based on her return expectations, risk tolerance, investment horizon, and goals.
Next, she should categorise her investments into these asset classes, eliminating those that don’t align with her plan. Priya may need to make additional investments in underexposed assets and divest the overexposed ones, achieving the desired portfolio allocation. Lastly, consolidating her holdings in a few core investments that consistently perform well, is crucial.
The consolidation process