Is your investment portfolio really underperforming? Don’t blame your advisor

‘My portfolio is underperforming.  My advisor has not recommended the right funds, and I have had an opportunity loss,’ is often a common grouse of many investors. But is it really the case? Or could it be a case of wrong expectations?

For instance, there are investors who are not willing to take risks but want high returns. These investors typically invest conservatively but expect high returns. Such investors deploy their money in hybrid mutual funds or a Nifty 50 fund and constantly compare the returns with mid-cap/small-cap returns, thus feeling discontented with their portfolio performance.

Then there are those who do not adhere to the advisors’ recommendation but blame the advisor when they hear about others’ portfolio performance. Also, some investors do not make changes to their portfolio when required, in line with their advisors’ recommendations, only to realise later that their investments have not performed as per their expectations.

Do not chase short-term returns

It is a common practice by investors to constantly chase the best fund. These investors track daily NAVs and constantly churn funds as soon as they see another fund performing better. Most of their choices are based on recent performance and even a slight underperformance due to sector/market cap rotation or market correction will get them whining about things not going well.

As Benjamin Graham said, “Investing isn’t about beating others at their game. It’s about controlling yourself at your own game.”

Be clear about your goals, avoid chasing short-term returns

For investors feeling dissatisfied with their portfolio performance, whether handled through the DIY (Do it Yourself) route or through a financial advisor, here are a few points to reflect upon:

1. Are you making the right comparison? Funds have to be compared in the same category, time period of investment and asset class. So, a large-cap fund cannot be compared with a mid-cap fund and a six-month performance cannot be compared with a two-year performance. Also, if one has chosen to invest in safer investments, it cannot be compared with higher yielding equities.
2. In hindsight, it is easy to grudge the opportunity loss, but can one foresee the future and is one willing to take risks? Investors start panicking even at a 5-10 percent downside. During this period, they are not willing to commit more capital. While it is easy to blame others for the opportunity loss, investors need to think back and reflect if they are willing to take decisions which involve risk-taking.
3. Portfolios also need to change with a change in goals. Further, an investor’s risk-taking ability may also alter with the change in goals. This certainly warrants a modification in investments.
4. There is no such thing as a best fund which will always perform well. It is important to choose a fund, as per one’s risk profile and investment horizon and stay invested, instead of regularly churning schemes.
5. Too many funds and over-diversification can also impact returns negatively. Investors should check how they can consolidate their portfolios for better long-term returns.