The “Smart” investing move that could be slowing you down
A quick test to see if you’re truly diversified or just collecting products.
Recently, I was speaking with one of the readers of Stock Market Explainers when he said something that stuck with me.
It wasn’t unusual. In fact, it’s something almost all of us do every month. We even have strong reasoning for it. On the surface, it makes perfect sense.
It feels responsible.
It feels safe.
It’s what we’ve been taught.
And yet… something about it feels off. Most of us only realize that much later often when it’s too late to fix.
The habit that feels smart
In this new series, I want to unpack some of these so-called good money habits the ones that look wise, responsible, and well-intentioned… but quietly slow down your wealth-building.
Because here’s the truth:
Not everything that feels smart is actually helping you grow wealth.
And not everything that feels risky is truly dangerous.
Let’s start with one common behaviour I’m almost certain you’re doing right now especially if you’re in the first three to five years of your mutual fund journey.
“I’ve picked these funds to diversify my portfolio”
Here’s how most new investors build their mutual fund portfolio:
Start with two or three funds for clear goals retirement, a house, your child’s education.
Then look for “better” returns. Maybe a small-cap fund is shooting up. Maybe someone on YouTube says large-cap is dead. Maybe your friend swears by a fund that gave 30% last year.
So you add more funds chasing past performance, chasing what’s “hot,” or simply trying not to miss out.
Eventually, your portfolio has 8–10 funds. Different categories. Different AMCs. Sometimes even overlapping holdings.
And when asked why, you give a reason that sounds smart:
“I’m trying to diversify. I don’t want to be stuck in underperforming funds. I want to reduce volatility.”
That logic makes sense. It feels responsible. But dig a little deeper, and you’ll see what’s really happening:
You’re justifying your actions not truly understanding them.
You’re calling it diversification… But in reality, you’re often just adding noise.
When diversification becomes diworsification
Here’s the shocker: you may be increasing your risk while reducing your potential returns. Diversification is meant to protect you from risk. But when it’s done without intent, it turns into diworsification.
It starts to:
Create false comfort
Cause duplication
Overcomplicate reviews
Worst of all? You start mistaking activity for strategy. You’re not managing risk you’re collecting products… and calling it diversification.
Why this matters
The idea of “owning more” to feel safer is deeply wired into us. But in investing, more isn’t always better especially when:
You’re holding funds you don’t fully understand.
Your original goals get lost in the noise of chasing “top performers.”
Your returns start mimicking the index minus the fees.
You might think you’re building a smart, balanced portfolio. But what you’re really building is clutter dressed up as control.
How it hurts your returns
Your mutual fund returns depend on two things:
The market : which will rise, fall, or flatline based on global cycles, events, and sentiment.
You : your behaviour, which is where the real difference shows.
The actual wealth you create the money that lands in your bank account often suffers not because of the fund’s performance, but because of how you interact with it.
Remember: the market is the same for everyone.
What changes your results is you. Your returns depend less on market movements, and more on how you behave and manage your plan.
You:
Switch too often.
Redeem during a dip out of fear.
Add funds without a clear role.
React to 1-year returns instead of 10-year goals.
Every one of these slowly chips away at your long-term compounding. You think you’re managing your portfolio but really… you’re interrupting it.
What to do instead
If you’ve ended up with too many funds, don’t panic. You don’t need to redeem everything tomorrow. But you do need to pause.
Ask yourself:
Why did I pick each of these funds?
Do I understand how each one fits my goals?
Am I diversifying… or just adding more noise?
Real diversification is purposeful allocation across asset classes, styles, and time horizons based on your life and your goals, not someone else’s forecast.
A simple action step
This weekend, spend just 20 minutes with your portfolio.
Not to rebalance.
Not to cancel anything.
Just to look.
For each fund, ask:
What is its purpose in my plan?
Do I understand what it’s doing?
If the answer is unclear, that’s a signal not to react, but to get curious.
That’s where clarity begins.
Coming up next
In the next post in this series, I’ll unpack another habit that feels responsible sticking to your SIPs no matter what and why that rigid discipline can sometimes backfire when your income or life goals change.
Because sometimes, the bravest thing isn’t to stay the course. It’s to revisit the map.
The takeaway
Wealth isn’t built by collecting more funds.
It’s built by making fewer, better decisions.
So next time you use the word diversification, pause and ask:
How exactly is this diversification helping me?
Why is it required in my case?
If I’m already playing safe, am I adding genuine safety or just another layer of perceived safety?
That extra layer might not protect you it might expose new vulnerabilities.
Some of these risks are created by your own behaviour, some by how you manage your personal finances, and a small part by market forces beyond your control.
And remember: in mutual funds, your real returns aren’t what the app shows as “XIRR” they’re what actually lands in your bank account. Since most of us redeem at different times, tracking that accurately is hard.
That’s why goal-based mutual fund investing matters. It keeps your focus on the destination, not just the portfolio value, and allows for course-correction in how much you invest.
Your portfolio return in isolation will always be just a number. Your goal progress that’s what truly counts.
Concluding remarks
Money is personal it shapes your choices, your opportunities, and your peace of mind. My goal with this newsletter is simple: to give you the clarity, habits, and confidence to stay in control of your financial decisions.
Each edition is designed to help you take one small, deliberate step toward the life you truly want where your money serves your goals, not the other way around.
So read, reflect, and put one insight into action this week. Over time, these small steps will become powerful habits. And those habits will become the foundation of your financial freedom.