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5 Elements of a good portfolio

by Manish Chauhan · 15 comments

This article will talk about 5 things every portfolio must have and we will see that it should be good for almost every type of investor . We will try to judge it over the important parameters discussed in my one of the earlier Article : Pillars of Success

The Five most important and must have things each and every portfolio must have are :

1. Life Insurance

Each and every person who has financial dependents must have a good Life cover through Term Insurance. This must be taken at an early stage of life for the longest term possible.

For India :

– Aegon Religare Life Insurance
– SBI Life Insurance
– Max New York Life Insurance
– LIC (Jeevan Amulya)

For Other countries :

Please search for your respective countries and find out which term insurance is the best one.

2. Health Insurance

This is extremely important now a days, because of rising health-care expenses. A Family must be covered with a Family Floater plan for a good amount (Rs 5 lacs/$10,000) depending on your budget .

3. PPF

Each and every portfolio much have debt exposure and PPF (for India) is an excellent investment product for anyone, backed by government , its 100% safe and one of the most efficient and tax efficient products available , with post-tax returns of 8% , its a must have in each portfolio .

4. SIP in Mutual Funds (for long term)

For long term investments, its hard to beat this . For long term investments Equity must be the route and for systematic and disciplined investing , SIP is the best way to channelize your money . Considering the undebatable growth for Indian economy , no can afford to miss Equities for long term investments.

5. Contingent Fund (Cash + Liquid Funds)

Each and every portfolio must have good amount of cash and liquidity to meet unforeseen and emergency expenses. Other wise you will have to liquidate and break you investment products which may attract penalites and may not give you enough cash at the time of requirement which can create problem .

Better to have money equivalent to 3-4 months of expenses in contingent fund . You can also put 1-2 months expenses as Cash and rest into Liquid funds which may also provide you some returns .

Analysis

Understand that these 5 things are a list of things one would have for sure , but its not an exhaustive list . Depending on your profile and requirements you should have other products as well. but i would say this will solve 90% of the problem . Let looks how a portfolio consisting of this 5 things passes on 4 parameters called Pillars of Success ?

1. Capital Appreciation : ****

With SIP in mutual funds and PPF , the capital appreciation should happen to a great extent , PPF would provide stability and assurity or returns , where as Equity will gives exceptional returns .

2. Liquidity : *****

We have already covered that Contingent fund should be able to provide good Liquidity.

3. Risk Management : *****

Term Insurance and Health Insurance will take good care . SIP will take care of the market volatility. some other techniques like Hedging using Derivatives and being well informed will manage extra level of risk .

4. Goal Oriented : *****

Each and every product is for a specific and important goal , as described above .

For Non-Indian Readers

Hi all , the article is specifically with Indian context , but article is helpful for each of you , please find the similar products in your country .

Conclusion

Each and every portfolio can be different and should match the requirement of the investor , But these 5 things are such that it can be for any kind of investor . Just like we have master key for any kind of lock , we have these products for any kind of investor .

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{ 15 comments… read them below or add one }

1 Anonymous October 27, 2008 at 4:48 pm

Hi Manish,

Happy Diwali and Prosperous New Year to you and your family members. God Bless you all with wealth and prosperity for the knowledge you are spreading around.

Thanks
Nitin Pillai

Reply

2 Manish Chauhan October 27, 2008 at 11:18 pm

Thanks Nitin

Happy Diwali to you too … Be in touch

- manish

Reply

3 arizona auto insurance October 29, 2008 at 11:37 am

Everyone needs life insurance. Even a single person should buy term insurance to lock in that preferred rating. Then they can convert, if desired, to permanent later on.

Reply

4 Sherin May 5, 2009 at 4:50 am

Agree with a suggestion. You have totally missed the investment instruments, gold and real estate by considering its capacity to beat inflation.

Sherin
The Money Maniac Blogger

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5 Manish Chauhan May 5, 2009 at 4:57 am

Sherin

I agree that real estate and gold is important part of portfolio, but as per my thinking It will not be most important 5 things .

Also , In this post the main goal is to find out 5 thing a portfolio cant do without . So from that point I think Gold or realestate can miss the list .

Anyways , Its a matter of view and opinions . I Appreciate your participation and suggestions .

Manish

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6 Mayur September 21, 2009 at 1:17 am

Manish u ve hit the bullseye…

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7 Manish Chauhan September 21, 2009 at 1:22 am

@Mayur

Thank you Sir :) . Which one do you think was the most important and which one could have been avoided .

Do you think we can add anything there ?

Manish

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8 bhupat March 5, 2011 at 10:23 pm

i feel a home/ real state should’ve been given more consideration because-
1. emotional value
2. excellent returns in long run
3. adding further -taking a loan (obviously within means) fulfills many goals like tax planning, earning of appreciation even before full value being paid up, saves alot on expenses, avoids the lone money parked in saving account, also the extra money (black/white ) can be put at one’s own ease for upgradation addition in house, rental income serves appreciation along with regular monthly income along with added security to premises
4.after all early beginners have early bird prizes; when one invests in first house, he does it for self living aim, compromise on new developing or lesser developed area. time flies by, after few years the area becomes well developed, new higher earning potential buyers seeking houses pays the premiums at much higher prices.
even examples are seen person invested in house & sold apart of it a few years down the line cleared all his loans : enjoyed the fastest & highest returns, saved on rent, tax….too

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9 Manish Chauhan March 6, 2011 at 11:04 pm

Bhupat

Thanks for your comment , I agree with you , the only thing is that one has to be in control and sense in what he does

manish

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10 Sanjay March 24, 2013 at 10:38 am

Dear Manish,

I think “Making a Will” should be also a mandetory element in one’s financial planning. What do you think ?

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11 Manish Chauhan March 27, 2013 at 12:28 pm

Obviously ! :)

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12 mahaleameya January 20, 2014 at 2:27 am

Hi Manish,

I’ve recently been introduced to JagoInvestor by a friend and I’m finding your articles to be an excellent learning resource – they’re easily the most beginner friendly and understandable articles for personal finance I have come across.

I’m writing to you since I’m unable to access the information in the links you have laid out throughout the article (the ones which redirect to your external blog) – The link denies me permission stating that the article is only for invited readers – Can you help me access the blog’s content?

Thank you!
Ameya

Reply

13 Manish Chauhan January 20, 2014 at 6:38 pm
14 mahaleameya January 20, 2014 at 9:44 pm

Hi Manish,

Thanks for the quick reply! The external links I was referring to redirected to a blog at http://finance-and-investing.blogspot.com/. Yesterday when I was reading this article , it had links pointed to specific ‘know-more’ articles about medical insurance among other topics. Can you help me access that content?

Thanks!
Ameya

Reply

15 Manish Chauhan January 31, 2014 at 12:06 pm

I was the old name of the blog . You wont loose anything from there ! dont worry !

Reply

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