Investment Shastra

How are your Risk Profile and the Current Portfolio Size Linked?

Your portfolio-size will be adequate, if the returns from that portfolio are able to support your goals.

Goals include things that you need or wish to provide e.g. higher education for children, marriage of children, corpus for a comfortable retirement, etc. Goals can also include things that you aspire for or dream about e.g. a farmhouse, a luxury car, grand world tour and leaving an inheritance after living a life without regrets.

All your goals need to be converted to the money required at the future date. The money required in future will translate to money you need to invest today—lump sum and/or an SIP. And, the return that you earn plays an important role in deciding this amount. A higher return would mean you require a smaller portfolio today.

But, what is a reasonable return to expect?

This depends on your Asset Allocation which is determined by your Risk Profile, and not the size of the portfolio. For a Moderate Risk Profile (50-50 split between Equity and Debt) a reasonable return is 10 to 12% CAGR on your entire Investable Surplus. So, if you need to provide Rs. 2.5 Cr after 20 years, you need a portfolio size about Rs. 30 lacs today or an SIP of Rs. 25,000 pm.

Read the series of the next articles to know different risks in a Stocks portfolio.

Start with knowing What are the different risks at the Stock-level?

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