4 financial things to review annually

Manvi Agarwal
·4 min read

Investors may avoid all sorts of financial mistakes: Chasing trendy funds/stocks, not matching your investments to your goals, paying too much for the advice, not diversifying enough. But if you fail to review your portfolio and make necessary adjustments periodically, chances are you will only have limited success as an investor.

A financial review is a lengthy task and can be intimidating. But reviewing every single aspect of your finances is not only tough to accomplish but also futile. So instead of combing through every item, start the review by asking yourself the following:

  1. Have I undertaken the right steps to preserve my assets?

People often misunderstand financial planning with investment planning. They often forget that it's not just about choosing the right investments, but about creating, managing and even passing on your long-term wealth. All of which requires you to adopt a holistic approach that must be reviewed periodically.

So once you have thought through:

what would happen to those who rely on your income if something were to happen to you

taken care of your beneficiaries? and

clarified ownership of your various belongings via legal documents, such as wills and trusts

review them annually at the least. And not just the paperwork.

Consider making amends to factor in any life events that have occurred, such as: changing careers, moving, having children or grandchildren, or losing a loved one.

These comprehensive legal documents can help resolve any conflicts that are likely to arise. And even though it seems unpleasant, you must do this yourself considering the alternative. Imagine someone else making all these decisions on your behalf.

  1. Have I taken all the necessary steps to protect my income?

Inadequate insurance (both medical and health) and excessive debt can all drastically affect not only your savings but your current income as well. Unforeseen events and emergencies can force you to borrow, jeopardising your financial health. So, an annual review to ensure you and your family have adequate insurance is necessary. You can also ensure that all your policies and its beneficiaries are up to date.

With age, your insurance needs change. An annual review can alert you to any adjustments you might need to make. For instance, if you feel the need to reduce your life insurance, you may want to employ those savings towards health insurance. As with time, health insurance becomes more critical and increases in cost.

  1. Is my investment strategy on track to achieving my goals?

During every annual financial review, you must revisit each of your priorities along with your strategies for reaching them. As with time, your needs, your wants and even your sources of income can change. So to ensure that your investment strategy reflects your financial goals, an annual review is a must.

A review can highlight the need for rebalancing, which might be necessary due to the following reasons:

  • To restore the investment mix that you determined was right for your goals. Check if your portfolio has drifted from the original asset mix: cash, bonds, and stocks; it is a mix of investment styles and sectors and country exposure; and its concentration in individual stocks.

  • Financial goals tend to change over time, owing to change in job, marriage etc. And so, you might want to change your current mix of stocks, bonds and cash (portfolio) to reflect your new financial goals.

  1. Am I taking full advantage of the prevailing tax laws?

It is a well-known fact that ineffective tax planning can easily hamper the growth of your wealth.

So, during your annual review, ask yourself: Beyond adopting diversification investment strategies, what approaches am I exploring to manage taxes on my investments efficiently? Investing tax-efficiently doesn't have to be complicated, but it does require some planning. Now we are not condoning that taxes should be the sole driver of your investments strategy. All we are saying that better tax awareness has the potential to improve your returns. Even saving as little of 1-2% can add up to a lot over time.

Assume you invest Rs.1,00,000 for ten years in these two funds.

After-tax Returns

10%

12%

Investment Value at the end of 10years

Rs.270,704

Rs.330,038

Even a difference of 2% can help you generate an extra 21% on your total investment value which can quickly inflate over time. So factoring in taxes while planning your investments while taking complete advantage of the prevailing laws annually, is essential.

A majority of sound investment strategies are built to withstand volatility. So during an annual review, it may be worth checking to see if your investments are still on track and continue to reflect: your investment horizon, financial situation and risk tolerance.

It will put your mind at ease knowing, you are in a better position to manage the ups and downs of the market.