Dipankar Jakharia
Guwahati
Thirteen years ago, when I started writing on personal finance, the subjects were very different. Eight times out of ten, I was introducing a new concept, explaining it, and learning along with my readers. Today, I find myself writing more about what not to do than about what to do. The information revolution has put an endless stream of financial content at our fingertips. Unfortunately, information and misinformation now travel together. As a result, I increasingly feel the need to warn, caution, and reflect rather than simply introduce new concepts. While I would still love to bring groundbreaking ideas and innovative personal finance strategies to your attention, what I see around me are recurring financial mistakes that continue to hurt investors. Today, I want to discuss two such traps.
The first is over-diversification. How many mutual funds do you really need? Before answering that question, ask yourself another one: how many mutual funds are you currently invested in? Open an Excel sheet and list all your funds. Then look at the underlying companies in which those funds invest. You may be surprised to discover that one-third, and sometimes nearly half, of your money is ultimately invested in the same set of companies. So, are you truly diversified? Often, the answer is no. It is like taking ten different medicines only to discover that half of them contain the same active ingredients. If your goal is to build long-term wealth through mutual funds—wealth that you intend to pass on to your children and eventually to your grandchildren—simplicity often works best. For most investors, two well-chosen index funds are sufficient: one tracking the Nifty 50 and another providing exposure to mid-cap or a combination of mid- and small-cap stocks. Think of mutual funds as legacy assets. They are not products meant to be bought and sold every few years. Ideally, they should outlive you and become part of the financial foundation you leave behind.
The second mistake I frequently encounter is what I call inherited investing. Many people in their thirties and forties are still holding financial products that were originally purchased by their parents. In most cases, these investments were started when the individual was still a student or just beginning a career. The intentions were admirable. Parents wanted to cultivate a habit of saving and investing, often guided by an insurance agent who provided convenient doorstep service and promised financial security. The care was genuine, but times have changed. A financial commitment made twenty or thirty years ago, when access to information and investment options was limited, may not be the best solution today. If you have inherited financial products or legacy investments, do not hesitate to review them. Examine whether they still serve your current goals and, if necessary, rebalance or restructure them. Emotions may be attached to these assets, but preserving the emotion does not require preserving the product unchanged. Adapting your finances to changing realities is a sign of wisdom, not disloyalty. Likewise, when you pass assets to your own children, they should have the freedom to review, reshape, and optimise them according to the circumstances of their time.
Ultimately, the relationship between money and happiness is similar to the relationship between food and health. Suppose your body requires 2,000 calories a day. Consuming significantly more than that will not necessarily make you healthier. What matters is not just the quantity of food but also its quality. Personal finance works in much the same way. You need a certain level of financial resources to meet your needs and achieve peace of mind. Beyond that, the quality of your investments becomes more important than their sheer number. A portfolio filled with high-quality assets is often more valuable than a larger portfolio cluttered with unnecessary products. And remember, every asset you own demands attention. The more you accumulate beyond your actual needs, the more time, effort, and mental energy you must devote to managing it. That discussion, however, is perhaps a subject for another day.
