As a practicing financial planner for over two decades, this question has always confronted me.
Should we construct a financial portfolio based on what a client likes, what is currently fashionable, and the flavor of the season? Or should we build a portfolio that is aligned to the client's risk profile, long-term goals and financial well-being—even if it looks rather boring today?
The closest analogy is that of a medical professional.
Should a doctor's prescription or treatment be based on the patient's or the family's understanding of disease? Or should it be based on what the doctor believes is genuinely in the patient's best long-term interest?
Financial planning is no different.
Today, thanks to social media, financial influencers, artificial intelligence, bankers, distributors and agents, there is an abundance of information—and unfortunately, a lot of noise. Add to this the fear of missing out (FOMO), and it becomes easy for investors to get distracted by products and strategies that are currently in the spotlight.
This environment can also create pressure on genuine financial advisers to modify their recommendations simply to keep clients happy. In some cases, the incentive is even stronger because every transaction generates commissions for the intermediary.
At Naveen Rego Capital, a fee-only financial planning firm and a SEBI Registered Investment Adviser (RIA), we believe our first responsibility is to act as a fiduciary. Our advice is never meant to excite, impress or titillate.
Its sole purpose is to help clients achieve their financial goals—whether that is financial freedom, a comfortable retirement, inflation-beating and tax-efficient wealth creation, children's education or marriage, or the purchase of important assets.
Our process is simple but disciplined.
We first build a strong protection portfolio comprising:
- Emergency funds
- Health insurance
- Term insurance
We then determine the appropriate asset allocation between:
- Equity
- Debt
- Gold
- Real estate
- Other asset classes
Within each asset class, we diversify further—for example in our equity portfolios, between:
- Indian and global equities,
- Active and passive strategies,
- Mutual funds and direct equities
- Different market capitalizations.
The same applies for allocation in strategies like fixed income instruments, real estate, commodities etc.
We then focus on low-cost investment solutions, such as direct mutual funds and index funds wherever appropriate, followed by tax efficiency and simplicity of implementation. Only after these steps do we select the actual investment products.
In our philosophy, products come last. Process comes first.
Position sizing is equally important. No single fund manager, company, sector or geography should determine the success or failure of a client's financial future.
For example, in our direct equity strategy, we typically maintain an equally weighted portfolio of around 15 to 25 stocks. No individual stock generally represents more than 0.5% of a client's overall financial wealth. This portfolio complements the mutual fund allocation rather than replacing it.
No particular strategy is more than 10% of one’s financial wealth however compelling the reason is. Hence, every product should therefore be viewed as part of the overall portfolio and not in isolation.
There will always be investments/strategies that outperform, some that underperform, some that we continue to hold, some that we exit and others where we increase allocation.
These decisions are not driven by emotions or headlines, but by a pre-defined investment process and disciplined position sizing.
Our endeavor is not to get every decision right.
Our endeavor is to ensure that the number of right decisions consistently exceeds the wrong ones.
A robust process helps minimize personal bias and emotional decision-making.
We always explain the rationale behind our recommendations and carefully listen to our clients' concerns. We encourage healthy discussions and differing viewpoints. However, when it comes to professional advice, our responsibility is to recommend what we genuinely believe will help clients achieve their long-term goals—not what may temporarily make them happy.
Clients are, of course, free to choose a different path or work with advisers whose recommendations better align with their expectations. Existing clients are also encouraged to a have a “Mad Money Portfolio” (restricted to 5% of one’s wealth) to try out exotic high-risk stuff beyond the scope of our advisory engagements so that the core portfolio is not disturbed.
We respect that choice.
Our own mission remains unchanged.
We want our clients to focus on their careers, businesses, families and passions, while we quietly and diligently work in the background to protect and compound their financial wealth.
If you have missed any of our previous articles, please visit https://naveenrego.com/blog-grid.php?aW5pdGlhdGl2ZXNfdHlwZV9pZA=MQ
Happy Financial Planning!
Naveen Julian Rego – CFP®
MD & Principal Officer
Naveen Rego Capital
SEBI Registered Investment Adviser
Reg No: INA000019211
BSE Membership ID: 2178
Disclaimers:
1. Investment in the securities market is subject to market risks. Read all related documents before investing.
2. Registration granted by SEBI, enlistment as IA with Exchange, and certification from National Institute of Securities Market (NISM) in no way guarantee the performance of the intermediary or provide any assurance of returns to investors.
3. Financial products recommended by us that are under the jurisdiction of other regulators are beyond the scope of SEBI’s grievance redressal mechanism.
