Don't just rebalance your portfolios, simplify them too

With the year-end approaching, it is a good time to have a detailed look at the portfolio to assess performance, changes and additions. But that’s not enough. An important aspect of rebalancing is also simplifying one’s finances. Often this part is missed out since the rebalancing activity is focused on investment performance and asset allocation.

Take the case of Goel, 65, who spends a majority of the year abroad with his children. Like most people of his generation, Goel invested mainly in real estate and has a couple of properties - an ancestral house in his hometown, a flat in Bangalore and some land in Jaipur. He has been investing in mutual funds over the last decade.

Goel’s pet peeve is the difficulty in finding people to take care of the properties. While the Bangalore apartment is on rent, Goel is worried about the land in Jaipur, since he doesn’t visit Jaipur and doesn’t know anyone who can look after it.

While in India, Goel stays in his hometown. The ancestral property being more than 50 years old is not in great shape and Goel has been trying to find a buyer for it for a long time.

Goel was shocked when I suggested he sell all the properties and buy a flat in the city he wants to live in. Taking care of real estate especially the ancestral home, in old age can be challenging. Furthermore, children living abroad find it cumbersome to manage their parents’ property and do not have the same emotional attachment.

There are times when the return on an investment is not all that matters. Life events and situations become more important sometimes. A friend’s father was adamant about selling his property but as his health failed, he realized the need to keep matters simple.

Instead of waiting for a situation to happen, evaluate how easy or difficult you find it to manage your investments, irrespective of the asset class. Not only real estate, but managing equities is also arduous for some investors.

Make a list of all your investments. You will be surprised to see the number of investments you have. In all probability, they would be more than you need. Exit smaller holdings and mark out the assets by order of difficulty in managing. Set a timeline by which you will withdraw from these investments. Reinvest the proceeds from the above in a maximum of 2-3 products. Try to add onto existing holdings rather than buying something new.

Goel sold the Jaipur and hometown property (it did take almost a year though) and invested the proceeds into fixed deposits. While fixed deposits are tax-inefficient, they are effortless to manage and are liquid as well, which works well for him given Goel’s age. In fact, having extra liquidity turned out to be useful to Goel, as he used the money to do the things he hadn’t done before.

This year-end while rebalancing put some thought into simplifying your portfolio. Keep it simple and meaningful.