There are other problems too with a high real estate holding. The industry is not transparent. Investments are not liquid as say shares and mutual funds, and transaction costs are higher. Typically, the ticket size of such investments runs into many lakh, which limits exit options. If, for instance, you needed Rs 1 lakh for an emergency, you will need to sell a house or a piece of land that is worth a multiple of that. When you sell, you will have to pay capital gains tax on your entire sales proceeds, in addition to incurring transaction costs. Since you need only Rs 1 lakh, you will need to reinvest the balance, which means incurring transaction costs all over again.

For those reasons, Vishal needs to lighten up on his real estate holding, in favour of equity and debt. Ironically, he came to real estate from those very asset classes, as he saw greater appreciation potential there. Says Vishal:” The stock market is unpredictable. I booked profits through the bull run, and invested in real estate.”   That pattern of investing typifies Vishal’s comfortable equation with money. “Money is a tool that provides you freedom, and that’s it,” he says.

Vishal, who resolved to become financially independent in his growing years after losing his father early, has built financial security for the family and bought insurance to shield them from potential disasters. From his first salary, he invested in equity and got himself term insurance. Today, he has assets across equity, debt and real estate. He has systematic investment plans in diversified equity funds to cover his goals of children’s education and retirement. The key for Vishal to strengthen that foundation is to monitor and rebalance his portfolio.

Such an exercise involves reviewing your portfolio performance and asset allocation once every three months. Mind you, I’m not recommending action every three months, as that will breed impulsive behaviour and bleed you in transaction costs and taxes.

I’m only recommending a three-month review. It will help you track performance of your holdings: which funds are doing well and which aren’t compared to the benchmarks, whether there has been an extraordinary increase in the share of a particular asset class. Such a periodicity will give you more data points and a greater understanding of your investments, which will give you clarity on when and how to rebalance. I suggest you rebalance your investments once a year.

Vishal, for instance, should review his risk and return profile, and develop an appropriate portfolio plan. He sees himself as a long-term investor, which makes it all the more important for him to have a strategy and be reasonably diversified.

Vishal should liquidate one of his real estate investments before the next instalment is due, and reinvest in other asset classes. Since Vishal is still in the accumulation stage of his life, he can partly rebalance his portfolio by making future investments in equities-related assets. Equities have historically given superior returns over a long period of time and also the stock markets tend to capture the overall growth in the economy. To start with, Vishal should lower his real estate holding from 70 per cent to 50 per cent, and subsequently to 30 per cent. As Benjamin Graham once said, “There are those who make money and there are those who keep it.”