How a strong investment portfolio can change a life (2024)

A client, say ‘A’, reached out to me a few years ago to help her manage her financial life, after her divorce. Even though she was ready with the money, the decision to invest it could not be made for almost a year. Another client, say ‘B’, took voluntary retirement 5 years before scheduled. He could not make up his mind about strengthening his insurance framework and moving the money out of tax-inefficient fixed deposits despite his expertise in financial assets. ‘C’ was asked to leave his CXO position with a severance package worth 12 months’ salary. He could not decide for almost 6 quarters, whether to prepay loans, or diversify his portfolio, and move to a low-cost lifestyle to protect his retirement corpus.

Many individuals are going through a “transition", to achieve a new stage in life. But the new stage is undetermined. What paralyzes their decision-making is the anxiety of going towards an unknown future. What role does money play in managing this change? Conversations with financial advisers are turning into therapy sessions, life goals-centric discussions and value-and-belief dialogues.

During my coaching call with Susan Bradley, the founder of suddenmoney.com, a few interesting themes emerged, which are present globally. She recommended that these cases be taken slowly without setting expectations on how much time is needed to accomplish the objectives. During transitions, time frames are inherently uncertain, and there isn’t any process that predictably leads a person to the confidence and well-being that is missing. She said that to impose a time frame usually means that key elements have been missed and choices are made simply to get beyond the feeling of indecision.

Here is what individuals and families looking for smoothening their financial transition can do.

Plans will fail: Your transition plan will fail. Your financial backup would erode faster than anticipated. Cash flows will be worse, and you would be driving through a fog of ambiguity longer than what you imagined. So, what should one do? Keep an adequate contingency fund. Put that in tax-efficient assets. Your funds should be more than double of what you decided in your cash flow plan. Be ready to control your expenses and accommodate surprise expenditures.

Discomfort, anxiety, and a feeling of urgency: These will likely be your new personality traits. Your initial thought of following your passion to de-stress won’t be a driving force after a while. You were earlier deriving your self-worth from the money you were making; during a transition, you are switching over to a completely new set of parameters (mostly all intangibles). But the change will take long so your portfolio should be skewed towards income-generating assets. Revisit the post-tax return on investment of every asset, and do not be scared to rejig the portfolio for better yields, if needed, with capital protection as new underlying theme.

Meeting experts will be your new routine: Whether evaluating your new business, portfolio, tax efficiency plan, or your physical and mental well-being, or even your new support system of individuals, you would be meeting more experts or professionals. Watch out for any unsolicited advice; many people would meet you and offer amendments for free. Take references only from experts who you have already signed up. Reach out to experts who have delivered results in similar situations. This may mean that you need more time at hand than planned, but the effort is worth your while. Remember that the unit of time in transition is “years" not months or weeks. Put aside a budget to deal with the expenses of consulting experts.

Behavioural change will be the key: Revisiting purpose, vision, daily routine, business strategy, new life norms, hours you spend, support system you create—some or every aspect will change. This change may seem unsustainable in the beginning because you are changing your habits and metrics to assess your life. These changes by themselves will be daunting, leave alone the changes in external environment like demonetisation, GST (goods and services tax) rollout or any other reforms that can impact your financials, personally or business-wise.

With so much uncertainty, you would want a few things to be certain. And certainty of your portfolio returns can be that pivot that will give you the stability. So, the next time you think of a change, make it a point to meet experts, and ensure that the financial support is strong enough to catapult you to your new life.

Amit Kukreja is a registered investment adviser and founder, amitkukreja.com

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Published: 28 May 2018, 09:04 AM IST