Investment guidance for management consultants
October 5th, 2007, I walked into a room full of aspirants who wanted to work for McKinsey & Company. After a rigorous and long interview process got the offer letter and I landed up spending few years in consulting before starting up.
Life at McKinsey was filled with long working hours, learning new skills and problem-solving real business issues.
The broad span of consulting work makes it an attractive career, offering a variety of projects, challenges and opportunities for personal development. This often involves working all over the world with multinational clients.
Usually, consultants are not able to allocate required time to manage their investments and here are some of the issues:
Consultancy requires meeting tough targets on time and consultants are often under pressure to deliver along with managing extensive travel schedule. This leaves very little time for consultants to take appropriate action for their personal investments.
Consultancy firms often adopt “grow or go” policies. The focus remains on moving up the ladder and that leaves little scope for personal work.
Since consultants work with corporate clients, they are not allowed to invest in client company’s stocks. This restriction includes self and family members since family members are treated as beneficiaries.
After every few months, consultants are assigned, a new corporate client. In case they have shares of the new client, they have to sell irrespective of the price levels.
Consultants are paid quite well and they travel extensively. They tend to accumulate savings through salary/bonus credits. This creates a false sense of investment growth.
Few steps management consultants can take to ensure their money is working harder than they are.
Technology enabled investment management
An access that allows consultants to review and rebalance their investment portfolio remotely can ensure that they are always on top of their investments.
Scheduling two hours every quarter will ensure that the investments are going in right direction and will provide psychological comfort as well.
Hire an advisor
A management consultant may hire a financial advisor to manage investment portfolio while the consultant is on the move.
Life events based investing
Buying a house, childbirth, kid’s going to college, nearing retirement etc. are all life events that have an impact on your investment portfolio. You should take time off to reflect on your investment portfolio based on your broad life ‘goals’.
A simple way to create an investment portfolio that grows peacefully is to:
Allocate 50:50 between equity and debt of your investment portfolio, irrespective of the market movement.
For simplicity, you can choose fixed deposit with a bank as a category to fill debt portion of your portfolio and index fund to fill equity portion of your portfolio. Expect 8-10% p.a. after-tax return if you follow this strategy over a period of five years or plus. You may have to annually rebalance your portfolio to go back to 50/50 allocation.
Here is even a better way to manage investments but will either require you to hire a professional or devote substantial personal time.
Allocate investments based on your investment goals and manage investments for each goal separately.
A standard 50:50 allocations may or may not make sense since each goal may have a different time horizon and psychological association.
Choose debt mutual fund or traded RBI bonds to fill debt portion of your portfolio and a combination of equity mutual funds and direct concentrated equity to fill the equity portion of your portfolio. This portfolio should generate 15-17% p.a. after-tax return.
Your money should work harder than you and provide enough financial flexibility to live a life that you love.