I am 41 and have been investing through SIPs in three equity mutual funds for the last seven–eight years. Over the years, my portfolio has become significantly skewed towards mid- and small-cap funds. Should I rebalance by shifting some gains into large-cap or balanced advantage funds, or should I continue with my existing SIP strategy?
–Name withheld on request
Change is the only constant in life – this saying is one of the most important parts of investing that most people fail to recognise. It’s the first thing that comes to mind when reviewing anyone’s long-term portfolio. Your goal and investing strategy in your 40s have to be different from what it was in your 20s and 30s. Based on this understanding, we need to approach your current portfolio with a clear purview of your future goals. It is fair to say that the risk appetite of a 41-year-old will be very different from that of a 25-year-old.
As you grow, your corpus evolves, and from a stability point of view, it makes more sense to turn towards steadier investments that will give good returns without the constant stress of high risk. This is the reason that it is advisable to always have a balanced portfolio of small-cap, mid-cap, and large-cap funds. More than individual funds, it is the balanced portfolio that can truly make or break your financial plan. Since your investments are currently heavily skewed towards mid-cap and small-cap funds, the first step is to increase your exposure to large-cap funds.
Given your equity portfolio, adding a balanced advantage fund or a dynamic asset allocation fund can play the role of a risk stabiliser without taking you out of growth assets altogether. However, it is also important to diversify your portfolio beyond equity markets and enter debt and commodity markets. This can be done in small steps by investing in assets like gold and silver.
Portfolio rebalancing is generally a great exercise to have a better understanding and control over your financial investments. Given the fact that your investments have remained limited to three equity mutual funds over the last seven to eight years, rebalancing might be the need of the hour. It can bring your investments back to a target allocation you are comfortable with, after market movements have disturbed it. And it is especially important as you enter your 40s, when your life goals shift more.
Speaking of shifting goals, this age is also the turning point where you start thinking about your retirement more actively. While planning for retirement from an early age is the way to go, you have to really re-evaluate your goals, your plan, and the corpus you have already managed to build. Even from this point of view, relooking at your SIP portfolio is essential to have a clearer and more targeted approach towards your financial goals.
Think of this as a timely course-correction: by rebalancing now and aligning your SIPs with your life in your 40s, you’re not just chasing returns, you’re making sure your money grows calmly and reliably alongside your real-life goals.
Nehal Mota is the co-founder and CEO of Finnovate