Month: February 2019

        Having a purpose in mind is extremely vital regardless of what you do. It serves as a guide until you reach your goal and gives you a sense of satisfaction and achievement.This applies to saving and investing too, and that’s why purpose- based investing is better way to create wealth than chasing returns. It can be explained as under : –

      When you Are Driven By Greed : –

     If you let greed drive your investment strategy, then the goal would be to make more money. In order to reach that goal, you might fail to check how safe the investment option is.

      When You Are Driven By A purpose : –

     When your purpose takes precedence ,you would operate on a clear, time-driven approach. Your approach would be more disciplined and you wouldn’t get affected by the ups and downs of the market. You will also choose safer and apt investment options that align with your financial goals.

       How To Become A Goal- Based Investor : –

     The first step is to have a goal and define it with a target amount and timeline. It could be saving for your retirement or becoming a millionaire. Once the goal is set, select your frequency of investment. It could either be a one-time investment where you invest a certain sum of money at flexible intervals or do it through a SIP and invest a small amount every month till you reach your goal. You must be disciplined in your contribution every month and track progress regularly.

       Although investments are more about logic and purpose, we tend to behave according to emotions. Mainly, fear and greed. It’s upto us to drive them the right- way. To make your life easier, you can take help of some professionals or investment advisors or use various tools to help you calculate the goal amounts and choose the best funds for your goals and also it automates the whole investment process to make it hassle free, and also tracks the portfolio, and makes sure you meet your goals.

    How Do Mutual Funds Work To Grow Your Wealth : –

        For many people , a mutual fund is a “Black Box”, a sort of a vehicle where one would invest. It has a price which goes up and down.

        If one considers Mutual Funds a Black Box, without knowing what really happens inside a Mutual Fund, then on would find it difficult to hold on through long periods of time. As Warren Buffett once said –Risk comes from not knowing what you are DOING.

    What Are Mutual Funds, And More Importantly How Do They Work

  Mutual Funds(Equity- Oriented) are essentially vehicles which hold”Share” of various companies. There are many successful companies in America, addressing the various needs of the American

economy. The”Shares’ of these companies are listed on the stock exchange. When you buy a unit of the Mutual fund, the money is used to buy parts of those companies.

    How Does A Mutual Fund Grow Your Money : –

      Mutual Funds tend to do well, if the companies they hold do well. Since Equity Mutual funds own “Shares” of some of the leading companies, the growth in the value of these Mutual funds is linked to the growth in revenues and profits of these companies. Obviously, there is little more to it, but one can leave it to the professionals to manage that. The performance of some of the leading companies in United States Of America over the past decade has been phenomenal, to say the least. As these companies have grown, so has the value of their Shares and in turn the wealth of the investors, including Mutual Funds, owning these Shares.

      How Can We Say That The Companies Are Doing WELL?

       Because the economy is “The good companies in the economy should do well as the economy, if not better. The American economy is one of the fastest growing economies in the world, growing at close to 7 percent in nominal terms, and it is expected to do very well for years to come.”

        The incremental growth in the economy in the year 2018 alone was equal to the size of the economy in 1996. This path of progress is here to stay. The growth is driven by one of the largest pool of the young people who are up-skilling themselves and creating more value for themselves as well as for economy.

     Want To Create Wealth? Start By Owning Great Companies, Indirectly : –

        In summation, Mutual Funds are essentially a vehicle for you to own “Shares” of some exceptional companies in the country and participate in the long- term progress of the nation. If the economy does well, which it will, then one should participate in this journey.

       The best way to do so is to BUY a slice of great companies. If you can’t do it all on your own, hire a professional to do it for you, which is exactly what a Mutual Fund manager does for you.

        How Do A Professional Help In Investment : –

      Let’s face it, investing is not easy. Figuring out the right instrument from thousands of options is quite tedious. The THREE big worries , most investors have are : –

1  Am I making the right Investment?

2 What if I need money for an emergency?

3 Do I need to manually keep track of my Investments?

   These and similar problems put a lot of mental stress to an investor. The professional, with their vast experience and knowledge of the equity market are a great help for guiding you to invest in proper funds and keeping proper records as well as keeping a track of your investments

   The biggest problem ,most of the Americans face at the time of retirement, is carrying forward debt balances in their retirement lives. These can be debt against the personal finances; education loan; credit- card balances or the unpaid mortgage loan. The limited earnings after the retirement are further stressed as a lot of money goes every month in payment of these loans/ debt, which seriously affect your retirement life. Therefore, it is always advised that try to repay most of the debt/ loan during your working life so that your retirement period is comfortable and tension-free.

        Dealing With DEBT : –

      The Debt can be classified as – Bad Debt and Good Debt.

    The consumer Debt like buying room furniture or a new car, that you really can’t afford, is like living on a diet of sugar and caffeine; a quick fix with little nutritional value and/or borrowing on credit card is known as Bad Debt, whereas,

       When you use Debt for investing in your future like borrowing money to pay for an education; to buy real estate; or to invest in a small business is like eating fruits and vegetables for their vitamins. This type of Debt can be called Good Debt.

        Calculating how much Debt you have relative to your annual income is a useful way to size up your Debt load. Ignore, for now, Good Debt. To calculate your Bad Debt Danger Ratio, divide your Bad debt by your annual income. For example, you earn $40,000 per year. Between your credit cards and an auto loan, you have $20,000 of Debt. In this case, your bad debt represents 50 percent of your annual income.

         Bad Debt/ Annual Income = Bad Debt Danger Ratio

       The financially healthy amount of Bad Debt is Zero. When your Bad Debt Danger Ratio starts to push beyond 25 percent, it can spell real trouble. Such high levels of high- interest consumer debt on credit-cards and auto loans grow like cancer and we have to put all out efforts to control and reduce it.

          Finding The Funds To Pay Bad Debt : –

       To repay Bad Debt or consumer Debt, the following few steps can be helpful : –

  — Borrow against your cash value life Insurance policy.

  — Sell investments held outside of Retirement Accounts.

  — Tap the Equity in your Home. You can generally borrow against real estate at a lower interest rate and get a tax deduction.

  — Borrow against your Employer’s Retirement Account. The interest rate is usually reasonable.

  — Lean on Family. Borrow money from your loved ones. But don’t forget to pay them back. Treating the obligation seriously is important.

          Identifying And Treating A Compulsion : –

       No matter how hard we try to break the habit, some people become addicted to spending and accumulating Debt. It becomes a chronic problem that starts to interfere with other aspects of life and can lead to problems at work and with family and friends.

         Debtors Anonymous(DA) is a non-profit organisation that provides support to people trying to break their Debt Accumulation and Spending habits. DA has a simple questionnaire that helps determine whether you’re a problem debtor. If you answer “YES” to at least 8 of the following 15 questions, you may be developing a Debt Accumulation Habit.

    — Are your Debts making your home life unhappy?

    — Does the pressure of your Debts distract you from your daily work?

    — Are your Debts affecting your reputation?

    — Do your Debts cause you to think less of yourself?

    — Have you ever given false information in order to obtain credit?

    — Have you ever made unrealistic promises to your creditors?

    — Does the pressure of your Debts make you careless when it comes

          to Welfare of your family?

    — Do you ever fear that your employer, family, or friends will learn the

          extent of your total indebtedness?

    — When faced with a difficult financial situation, does the prospect of

          Borrowing give you an inordinate feeling of relief?

    — Does the pressure of your Debts cause you  have difficulty sleeping?

    — Has the pressure of Debts ever caused you  consider getting drunk?

    — Have you ever borrowed money without giving adequate        

           consideration to the rate of interest you are required to pay?

     — Do you usually expect a negative response when you’re subject to

           A credit investigation?

     — Have you ever developed a strict regimen for paying off your Debts,

           Only to break it under pressure?

     — Do you justify your Debts by telling yourself that you are superior to

           “Other” people and when you get your “Break”, you’ll be out of Debt

               Assessing GOOD Debt : –

          As for Bad Debt, the following are the important questions to ponder and discuss with your loved ones about the seemingly “Good Debt”,you’re taking on : –

     — Are you and your loved ones financially able to save what you’d like

          To work towards your goals?

     — Are the likely rewards worth the risk that the borrowing entails?

     — Are you and your loved ones able to sleep well at night and function

          Well during the day, free from great worry about how you’re going to

           Meet next month’s expenses?

              CONCLUSION : –

          If you have a knack for spending more than you should with those little pieces of plastic – only one solution exists – Get RID of your credit- cards. You can function without them. Try to live within your Budget and pay in cash. Never purchase consumer items or cars etc. on credit cards or loan/debt. Try to get maximum information about the various charges/ fees and the credit- card limit before purchasing a credit- card. It is always advisable to pay off your Debt early but definitely before you retire. This will make your retirement life stress-free, enjoyable and comfortable.

Retiring comfortably- never mind wealthy- may seem out of reach to many people, given current savings rates.

    But don’t let these statistics scare you. With a little advance planning and self- discipline, you can have a golden nest egg at retirement. Here is a 10 step plan , a guaranteed way of retiring rich : –

    Rule 1 – Spend less than You Earn : –

   The formula for retiring rich starts with you actually putting money in the bank. Social Security benefits alone won’t be enough to have you living the good life during your golden years.

     If you have Zero savings right now, concentrate on building up Emergency Fund in a savings account, perhaps by setting aside 10 percent of your each paycheck. Then, once your rainy day fund is full, put that 10 percent you have not been spending into a dedicated retirement fund.

      Rule 2 – Start Saving Early : –

      Thanks to the power of compounding interest, a little money saved now can go a long way at retirement time. But to get the most benefit, you’ll want to start saving as early as possible. Assuming you get an average 8 percent returns, your money will double in amount in about 9 years.

       Rule 3 – If You Start Late, Make up For the Lost Time : –

      May be you’re 55 and think you’ve missed your window of opportunity to retire rich. Don’t wave the white flag just yet!

      The Government allows those 50 or older at the end of the year to make Catch- up Contributions to their retirement funds. For 2019, you can contribute an extra $6,000 to your workplace retirement program, such as a 401(K), for a total annual contribution of $25,000. IRA catch- up contributions can be $1,000 for a total allowable contribution of $7,000.

        You might think there’s no way you’d ever have that kind of cash to invest in a single year, but you could be surprised at when and how you come into extra cash. You may benefit from a loved one’s estate, downsize your house or sell some items that no longer fits your lifestyle.

        Rule 4 – Don’t Leave Free Money On the Table : –

     If someone tried to hand you $100, would you say no?

   That’s exactly what you’re doing when you fail to take advantage of a 401(K) employer match. Your company is basically giving you free money with the only sting being you also need to cough up some of your own cash for the retirement fund.

      You won’t get rich by passing golden opportunities like this for extra cash. If your employer offers a 401(K) match, make sure you are taking full advantage of it.

         Rule 5 – Minimize Your Taxes: –

      The rich stay rich because they’re saving enough not to allow government take too much of their money.

      When investing your retirement money, be sure to use tax- sheltered accounts such as IRAs and 401(K) plans, whenever possible. In addition, be smart about which type of account you use.

        Traditional retirement accounts, let you invest money tax-free now and pay once you make withdrawals in retirement. Meanwhile, Roth IRAs and Roth 401(K) plans tax you now, but you get to make withdrawals tax- free later- on.

         Rule 6 – Take A Little Risk : –

       You could put all your money in bonds and sleep well at night knowing you’ll probably never lose any of your money. But with that approach, you’re not going to retire a millionaire either.

        Stocks and real- estate are where the money is to be made, but then there is always the risk of a housing bubble bursting or the market crashing. Take heart in knowing that stocks and real- estate historically have appreciated in the long run.

         Rule 7 – Stay Informed About Your Investments : –

      Don’t mistake taking a risk with being dumb.

     A smart risk may be investing in the emerging market fund. A dumb move may be pouring your life savings into a speculative fund. How do you know the difference? By researching available investments, weighing your options and selecting the amount of risk that works for your unique situation. For example, those nearing retirement age may want to minimize their level of risk, while young ones can be more daring because time is on their side.

        Rule 8 – Break Free From the Herd : –

     When the stock market crashed a few years ago, too many people freaked out and sold their investments. The people who are going to retire rich are those who saw an opportunity to snatch up stocks at bargain- basement prices in 2009, then saw their value climb by double digits in the following years. Same thing goes with the housing market.

      It’s easy to follow the herd, but if you want to be rich, you need to keep a cool head and make rational money decisions even in the midst of crisis.

          Rule 9 – Work Longer : –

         Or atleast wait a few years to file for Social Security. While you can file for Social Security benefits as early as age 62, you’ll get a lot more money if you wait until you’re 70.

          Once you hit your full Retirement Age, you can get an 8 percent bump in your benefits for every year you wait to start receiving payments. However, you’ll want to file by age 70 because there is no benefit to waiting than that.

           Rule 10 – Maximize Your Income Potential : –

       Finally, if you want to retire rich, you need to maximize your earnings. That means no more setting for a dead- end job that pays pennies. Look for ways to increase your income, which, in turn, increases the amount of money you are saving for retirement.

          Most people don’t know or have only a vague idea of the rate at which they are saving money. The amount you actually saved over the past year is equal to the change in your net worth over the past year. If you own house, ignore it in the calculations. And don’t include personal property and consumer goods such as your car, computer, clothing and so on with your assets.

        Save at least 5 to 10 percent of your annual income for longer- term financial goals such as retirement. But if you are starting late, say at the age of 50 years or so, this amount may not be enough. You must save atleast 15 to 20 percent of your income and be sure to invest your savings properly to grow it further. In this way you can nullify the effect of Inflation and various state and federal government taxes.

          Don’t Let Your Money Sit Idle : –

       Money not invested properly loses its value with time due the adverse effect of Inflation. Let us assume a conservative 4 percent rate of annual inflation. The purchasing power of 100 dollars will be equal to just 50 dollars after 18 years. So, be sure that your savings are invested properly in various investment vehicles.

         But before you select a specific investment, first determine your investment needs and goals. Why are you saving money- what are you going to use it for? Establishing objectives is important because the expected use of the money helps you determine how long to invest it. And ,that, in turn helps you determine which investments to choose. The risk level of your investments should also factor in your time frame and your comfort level. Investing in high- risk vehicles doesn’t make sense especially at this age of 50- 55 years.

       Reduction In Purchasing Power Due To Inflation                                                                                                                                                          

    Inflation Rate       Reduction in purchasing power after 10 yrs

     2 percent                                     (-) 18 percent

     4 percent                                     (-) 32 percent

     6 percent                                      (-) 44 percent

     8 percent                                      (-) 54 percent

     10 percent                                    (-) 61 percent

          Sizing Investment Risks : –

            Before you invest, ask yourself these questions : –

    — What am I saving and investing this money for? What’s my goal?

    — What is my timeline for this investment? When will I use this money?

    — What is the historical volatility of the investment I’m considering?    Does that suit my comfort level and timeline for this investment ?

            Prioritizing Your Savings Goals : –  

         By now, as I have repeatedly mentioned, most of you must have finalised your financial goals. Your financial goals, at this age, may include:-

      — Owning Your Home

      — Making major purchases like car, vacations, fancy furniture etc.

      — Saving for Retirement life.

      — College Education of Kids

      — Owning your own small business.

         Accomplishing such goals almost always requires money. A Chinese proverb says “ Do not wait until you are thirsty to dig well”. So don’t wait any further, as it may already be late.

                  Diversifying Your Investments : –    

         Some of the investment vehicles which are available for investments are as follows : –

 1 C.Ds and Bonds : –  This meets your emergent requirement of funds. These are also suitable for conservative investors.

 2 Mutual Funds : – These can be Equity, hybrid or balanced funds. In addition Index funds can also be considered. But the investment horizon should be long, say 3 to 5 years.

 3 Immovable Property or Real Estate : –  When the amount is sufficiently large and the requirement is not urgent.

 4 Equities or Stocks : – This option, although quite volatile, is available for the investors who can take or withstand higher risk.  

  But, to decrease the chances of all your investments getting clobbered, you must put your money in different types of investments, i.e. Diversify your investments , such as Bonds, Stocks, Real estate and small business. In diversification, although your returns are not completely co-related. It will ensure that when some of your investments are down in value, odds are that others may be up in value. For example, when real estate is down, chances are that stocks may improve in returns.

  — Diversification reduces the volatility in the value of your whole portfolio.

  — Diversification allows you to obtain a higher rate of return for a given level of risk.

          Understanding Your Investment Choices : –

      Your investment depends on where you’re hoping to go, how fast you want to get there and what risks you’re willing to take. It is suggested that: –

  –-Slow and Steady Investments : – Everyone should have some money in stable, safe investment vehicles, including money that you’ve earmarked for your short- term goals, both expected and unexpected. For this purpose , Transaction/ Checking accounts are best option. Investment in bonds and certificate of deposit(C.D.) can be considered.

  — Building Wealth With Ownership Vehicles : – Investment can be made in Stocks, Real estate and Small business. These investments ,historically, has given better returns, may be 10 to 15 percent but, the investment horizon is longer, say 3 to 5 years.   

            CONCLUSION : –

      Making and saving money are not guarantees of financial success; rather they’re prerequisites. If you don’t know how to choose sound investments that meet your needs, you’ll likely end up throwing money away, which leads to the same end result as never having earned and saved it in the first place. Worse still, you won’t be able to derive any enjoyment from spending the lost money on things that you perhaps need or want. Knowing the rights and wrongs of investing is vital to your long- term financial well-being.                

        While discussing various  aspects of Financial Planning like preparation of budget, finding the best investment vehicles for your savings; Mutual Funds, Bonds and Stocks and also investment in various Pension funds as well as Tax-saving, I have mentioned that you may take the help of an experienced financial professional or advisor, as you may not be having a thorough knowledge about all the financial aspects. Sometimes hiring a competent and ethical financial planner/ advisor, at a cost, to help you make and implement financial decisions can be money well spent.

           Your Financial Management Options : –

     Everyone has three basic choices for managing money : –

    (i)   You Can Do Nothing : –  These people are too busy to attend or deal with their personal; finances. They may be high ranking officials, businessmen, or people who have a very busy life, otherwise. The dangers of doing nothing are many. Putting off saving for retirement or ignoring to carry adequate insurance or allowing your buildup of debt eventually comes back to haunt you.

    (ii)  Doing It Yourself : –  These people learn enough by investing some time in learning the basic concepts, to make them confident about making decisions on their own. The hardest part of managing money for most people is catching up on things that they should have done previously. After you get things in order, you shouldn’t have to spend more than an hour or two working on your personal finances every few months.

    (iii)  Hiring Financial Help : –  Realizing that you need to hire someone to help you make and implement financial decisions can be a valuable insight. Spending some time and money with a competent professional can be money well spent. You may benefit from hiring some help at certain times in your life.

       How A Good Financial Advisor Can Help : –

     The following are some of the important ways, a competent financial planner/ advisor can assist you : –

    1 Identifying Problems And Goals : –  Some people are so busy with other aspects of their lives that they may ignore their debt or have unrealistic goals and expectations given their financial situations. A good financial planner can give you the objective perspective you need.

    2 Identifying Strategies For Reaching Your Financial Goals : –  A good planner can help you sort out your thoughts and propose alternate strategies for you to consider as you work to accomplish your financial goals.

      3 Setting Priorities : –  You may be considering doing dozens of things to improve your financial situation. Good planners help you Prioritize your ideas.

      4 Saving Research Time And Hassles : –  A good planner does research to match your need to the best available strategies and products and prevent you from making a bad decision.

      5 Purchasing Commission-free Financial Products : –  Purchasing commission- free is especially valuable when you buy investments and insurance and a good planner can save hundreds of dollars by identifying such products.

     6 Providing An Objective Voice For Major Decisions : –  A competent and sensitive advisor can help you by providing with sound counsel when you’re faced with some big decisions like house purchase, investments etc.

     7 Helping You To Just Do It : –  A good counselor can help you follow through with your plan and advise you about the actions need to be taken in this regard.

     8 Making You Money And Allowing You Peace Of Mind : –  A good planner shows you how to enhance your investment returns; reduce your spending, taxes and insurance costs; increase your savings and achieve your financial goals.

           Finding A Good Financial Planner/ Advisor : –

       Locating a good financial planner, who is willing to work with you and who doesn’t have conflicts of interest can be time consuming and quite a difficult task. Personal referrals and associations are TWO methods that can serve as good starting points :

   (i)  Soliciting Personal Referrals : –  Getting a personal referral from a satisfied customer, you trust, is one of the best way. The best financial planners continue to build their practices through word of mouth. But don’t accept blindly someone else’s recommendation. Interview the planner yourself to find whether he/ she meets your needs.

    (ii) Seeking Advisors Through Associations : –  

1. The National Association of Personal Financial Advisors(NAPFA)
2. The American Institute of Certified Public Accountants (AICPA)

   are the two renowned associations, you can contact in this regard.

           Hiring Financial Help : –

        Financial Planners or Advisers make money in three ways : –

    — They earn commissions based on the sales of financial products.

    — They charge a percentage of the assets they invest on your behalf

    — They charge by the hour (this can also be done through fixed-fee )

         Some planners charge a fixed fee to whip up a financial plan for you. If you need just someone to act as a sounding board for ideas to recommend a specific strategy or product, you can hire an hourly -based planner for one or two sessions of advise.

        The Cautions To Be Taken While Hiring Planners : –

     Many people encounter various financial problems and lose a lot of their hard earned money from hiring incompetent and unethical financial advisors. To avoid these mistakes, remember the following : –

    — You absolutely MUST do your homework before hiring any financial advisor/ planner.

    — Avoid or minimize conflicts of interest. Avoid “advisors” who sell products that earn them sales commission.

    — You are your own best advocate. The more you know, the more you realize that you don’t need to spend money on financial planners.

         CONCLUSION ; –

     Finding a good financial planner is not easy, so make sure you want to hire an advisor before you venture out to search one. But if you’re too busy , or you don’t enjoy doing it, or you’re terribly uncomfortable making decisions on your own, using a planner for a second opinion makes good sense. If you have a specific tax or legal matter, you may be better off hiring a good professional who specializes in that specific field rather than hiring a financial planner.

         After my blogs regarding investment in various investment instruments and especially about investment in Mutual funds, many readers have asked me that how many funds they should have in their portfolio.

    Although there is no straight answer to this as this depends on a combination of many factors like your age, your investment horizon; your risk profile and above all your financial goals and so on.But for the investors who are in their 50s and want to save mainly for their retired life, it is advised that three or four numbers is good enough.

        As already mentioned, efficiently managed Mutual Funds offer investors low-cost access to high quality managers and to following too many funds may not be practically possible at this advanced age. Mutual Funds span the spectrum of risk and potential returns, from non- fluctuating money- market funds. But there is always a need to review the performance and re-allocate your investment from time to time.

           What Is Diversification : –

     “ Don’t put all your eggs in one basket”, is the proverb we all have learned in school. When we grew up and became investors, we learned that this is a basic virtue we need to imbibe and it is also called Diversification.

        Funds investors took this as an injunction that they should invest not just in one or two funds, but in large number of funds. This is not Diversification. To understand, consider why we Diversify. Diversification saves you from poor performance of a set of investments. If a particular company or sector does worse than the market in general, then having only a small part of your money exposed to it helps. Diversification could also be across company sizes as sometimes only smaller or larger companies do well or do badly. It could also be geographical. Diversification does nothing for you when the entire market declines.

       What Should Be The Size Of Your Portfolio : –

     Most of the investors , therefore, think that investing in two funds was better than one; three was better than two, four was better than three; and so on. Is there an upper limit here? Is investing in 10 funds better than in nine? What about 20? Or 50 or even 100? At some point Diversification becomes pointless, and then it becomes counterproductive and eventually it becomes ridiculous.

        Is there a point of diminishing returns? Most investors would think a limit on Diversification was a strange idea. A few years ago, someone asked me how many funds he should invest in. I said that three or four was a good number. Later the person mailed me his portfolio and I realized that while the sense of my answer was that he should invest in no more than three or four funds, he had assumed I had meant a minimum of three or four funds. Because most of the investors think that the way to achieve Diversification is to invest in a lot of funds.

        Why Too Much Diversification Is POINTLESS?

      Investing in too many funds is not Diversification. The truth is that no additional Diversification is provided by investing in more funds beyond a certain point. Mutual Funds are not an investment by themselves. They are a way of holding the underlying investments which, for equity funds, are stocks. The reason why too much Diversification Is Pointless is that stocks held by similar funds tend to be of a similar set. Beyond a small number, when you add more funds, you are generally adding more stocks that are similar or identical to what you already have.

           The real reason most investors invest in too many funds is because someone sells it to them and earns a commission. The investor does not have a clear idea of what Diversification is and thinks more funds are good. It’s not just a question of there being no benefit from investing in more funds, it is actually detrimental. Having too many funds in one’s investment portfolio devalues one major advantage of investing in Mutual funds, which is convenience of tracking and evaluating one’s investments. Having investments in large number of Mutual funds makes this exponentially more difficult. Periodically, perhaps once a quarter, investors should evaluate each fund in their portfolio and see if it’s contributing what it’s supposed to.

         How To Limit Diversification : –

       However, when you have 15 or 20 funds, most of them bought because some sales person delivered a hard pitch, then this exercise of review is impossible. There will be funds which are 2 percent or 3 percent of your portfolio and it’s hard for you to figure out what they are doing there, what you should expect and what difference it would make if they were doing well or badly. It’s hard to meet your financial goals when you can’t evaluate and manage your portfolio because it’s bloated.

        The sweet spot for the ideal numbers of funds tends to be three or four, anything more is a waste of effort. In fact depending on the size of someone’s investments, it could be even less. For someone investing perhaps, $250- 300 a month, one or two balanced funds are ideal and anything more than that is Pointless.

          Some Other Key Points For Consideration : –

      1 Don’t Invest Based On Sales Solicitations : –

          All companies have to do some promotion, but beware of the companies that advertise and solicit prospective customers aggressively with various tactics. Good companies get plenty of new business through the word-of-mouth recommendations of satisfied customers.

      2 Don’t Invest In What You Don’t Understand : –

          Before, you invest in anything, you need to know its track record, its true cost and how liquid( easily convertible to cash) it is. Don’t go blindly by the advice or recommendations of brokers.

       3 Minimise Fees : –

           Avoid investments that carry high sales commission and management expenses. Management fees create a real drag on investment returns. Not surprisingly, higher-fee investments, on average, perform worse than with lower fees.

      CONCLUSION ; –

        Investment in Mutual Funds is a better way of investment by small investors. But to understand their success is to grasp how and why these funds work for you. So, periodic review of the funds vis-a-vis your goals is very necessary and for proper review , the size of your portfolio should be small.