The Art and Science of Withdrawing Money from Your Portfolio During Life's Uncertainties

Life is unpredictable. No matter how carefully we plan our finances, there will always be unexpected twists—job loss, unexpected family expenses, medical emergencies, or hospitalizations. While most of us plan for the future based on known factors, the reality rarely aligns with our expectations. That’s why learning how to withdraw money from your portfolio when faced with these sudden life changes is an art and a science.

In India, while some life events can be hedged by insurance, such as health or life insurance, many expenses remain unforeseen. This makes financial preparedness crucial. Let’s dive into the strategies that can help you navigate such situations efficiently.

Key Principles for Financial Resilience

When building a financial portfolio, the following principles play a pivotal role in ensuring you are well-prepared for any life event:

• Asset Allocation:

  Diversifying your investments across different asset classes like equities, bonds, and gold can provide a balance between risk and reward. A well-allocated portfolio reduces your risk exposure and ensures that when you need to withdraw funds, you can do so without causing significant damage to your overall wealth.
  For example, in times of market volatility, having a portion of your funds in safer assets like bonds can prevent you from selling your equity holdings at a loss. Regularly revisiting and adjusting your asset allocation is essential to ensure it matches your current financial situation and risk tolerance.

• Emergency Funds:

  Having a dedicated emergency fund is the cornerstone of financial planning. Ideally, this fund should cover 6-12 months of your monthly expenses. In case of job loss or sudden medical emergencies, this fund can act as your financial cushion. Keeping this fund liquid (e.g., in a savings account or a liquid mutual fund) ensures that you can access it immediately without penalties or losses.

• Health Insurance for the Family:

  In India, healthcare costs can be overwhelming, especially in private hospitals. Having comprehensive health insurance coverage for your family ensures that medical emergencies do not deplete your savings or force you to sell investments prematurely. Always review your policy coverage and make sure it aligns with your family's needs and rising medical costs.

These principles, when combined, offer a strong foundation for a resilient financial plan. However, saving money is only half the job; spending it wisely when necessary is equally critical.

When to Withdraw from Your Portfolio?

Life throws curveballs, and sometimes withdrawing from your investments becomes inevitable. Here are some common situations where you may need to dip into your portfolio:

• Job Loss:

  Sudden unemployment can be one of the most challenging situations. Your regular source of income disappears, but your expenses remain the same. In this scenario, your emergency fund should be your first line of defense. If the situation persists, you may need to withdraw from your portfolio, but be strategic. Start with liquid investments or those with minimal tax implications, such as fixed deposits or debt mutual funds, before touching long-term equity investments.

• Unexpected Family Expenses:

  In India, we often face sudden expenses for family events, be it a wedding, educational fees, or helping a family member during a financial crisis. When such situations arise, withdrawing from your portfolio might be necessary. However, it’s important to prioritize expenses and ensure that you’re not pulling funds from your retirement corpus or long-term goals.

• Medical Emergencies:

  Despite health insurance, there may be times when the coverage is inadequate, or you encounter out-of-pocket expenses. In these cases, liquidating short-term investments can be an effective way to cover costs without derailing your long-term plans.

How to Withdraw Strategically?

Here’s how you can approach portfolio withdrawals smartly:

1. Start with Liquid Assets:

   Always withdraw from assets that are easily convertible to cash and incur the least penalty. Liquid mutual funds, fixed deposits, and savings accounts are examples of liquid assets.

2. Minimize Tax Impact:

   Be mindful of tax implications when withdrawing money. Long-term capital gains (LTCG) on equity investments held for more than one year are taxed at 10% (above ₹1 lakh). However, short-term gains can attract up to 15% tax. Withdraw from assets with the lowest tax burden to preserve more of your wealth.

3. Avoid Disturbing Long-Term Investments:

   Try not to sell off your long-term investments such as retirement savings, equity mutual funds, or stocks that have the potential for significant growth. Liquidating these can affect your future financial security.

4. Review Your Withdrawal Plan Regularly:

   Regularly assess how much you can safely withdraw from your portfolio without hampering your long-term goals. Getting a second opinion from financial advisors can help you make informed decisions. At Viso, we offer expert financial advice tailored to your unique needs.

Get a Second Opinion with Viso

Whether you are building a financial portfolio or need to withdraw from it due to unexpected circumstances, having expert guidance can make a world of difference. Viso connects you with experienced financial advisors who can provide a second opinion on your existing plan and suggest the best alternatives based on your current situation.

Remember, a well-planned portfolio is not just about saving money but about spending it right when life throws unexpected situations your way. Prepare today, so you’re never caught off guard.

By incorporating these principles into your financial strategy, you'll be better equipped to handle emergencies and protect your long-term financial goals. Always ensure that your portfolio is built with flexibility, allowing you to withdraw strategically when the need arises. For personalized advice, reach out to Viso for a consultation today.