Investing is a major part of financial planning but not all investments prove to be good ones. Frauds, scams and unsuccessful start-ups can pose risk to your investments. But before you fall into the trap of these risks, it is important that you identify any issues or risks that may exist in your investment portfolio. After all, you want to make the most out of your investments. So, here is a list of 5 red flags that you must watch out for in your investment portfolio. In other words, you must identify and avoid these red flags when considering your investment portfolio.
1. If it sounds too good to be true
Many times, companies promise hefty returns within a short span of time. Although it might be fascinating, you must exercise prudence and study about the company in detail. Find out about their business, growth objectives, marketing and growth strategies, study their past records, etc. in order to identify if the numbers projected by them are genuine and realistic. If you feel that the growth of the company is not as promised or its goals are not aligned then it is advisable to sell such stock in the share market from your portfolio as you might end up losing money by staying invested in stocks of such a company.
2. Silence Speaks
It is important to keep a track of the disclosures made by the company. If a company is not making timely disclosures or the broker is not providing sufficient information about a company then there is a good chance that the company might default in future. Silence in such cases is not good as it increases the doubt on the credibility of the company. Therefore, it is advisable to withdraw money from such stocks of the Indian stock market rather than waiting for something positive to happen.
3. Misleading Advise
If you have built your portfolio by taking advice and recommendation from close people like friends or family then there is a good chance that your portfolio might face some trouble in the future. It is not necessary that the suggestions or advice given by the people are correct. They may be more risky or different from your future needs and goals. In such a scenario, you must take a good look at your investments and take decisions according to your risk and return preferences. Exit from those investments which are not beneficial or riskier or based on misleading advice.
4. Monitor Timely
Always build a portfolio that is based on your future goals and needs. Such a portfolio must not be checked regularly. Instead monitor the performance of your portfolio annually or bi-annually. By analyzing the performance of different asset classes like equities in share market, gold, mutual funds, etc., you can make changes and exit from those investments that will not give you good returns or would perform badly in the long run. Such monitoring would help you in understanding the presence of a red flag in your portfolio.
5. Risk And Return Go Hand In Hand
If the major part of your investment portfolio is in the form of surplus cash, it’s not a good sign. You must make sure that your money is not idle. The whole idea of investment is that your returns must beat the inflation. If you keep your capital idle or invest in asset classes that give lower returns, you will not meet the objective of beating the inflation. You must make systematic investment plans to ensure that your money is not idle and you meet your financial goals.
The above points shall help in you identifying any red flags in your investment portfolio.