Chapter 16 · Some Cautions and Concluding Observations
This is Article 8 of the “Science of Getting Rich × Mutual Funds” series on rahulmoney.com
Wallace Wattles devotes Chapter 16 of The Science of Getting Rich to cautions — the specific failure modes that derail people who are otherwise on the right track. After fifteen years of observing how salaried professionals in India actually invest, I can map his warnings precisely onto five mistakes I see most commonly.
These are not the mistakes of uninformed people. They are the mistakes of people who know better — but whose emotions or habits override their knowledge at the crucial moment.
Mistake 1: FOMO investing
When the Nifty Midcap 150 runs up 40% in a year, everyone suddenly wants a midcap fund. When small-cap funds are top performers in a bull market, investors pile in. This is performance chasing — investing in what has already gone up, hoping it continues.
The research on this is clear and consistent: investors who switch into top-performing funds after their strong performance run typically underperform investors who stay in average funds steadily. Returns mean-revert. You are almost always buying near the peak when you invest based on recent performance.
The rule: Choose your fund category based on your goal and time horizon. Choose the specific fund based on consistency, fund house quality, and expense ratio. Never choose based on last year’s returns.
Mistake 2: Stopping your SIP in a market crash
This is the most expensive mistake. When markets fall sharply, stopping your SIP feels like self-protection. What it actually does is lock in your losses and cut off your purchase of cheap units.
A market correction is a sale on equities. Your SIP is designed to take advantage of exactly this situation. Stopping it in a crash is the equivalent of refusing to buy groceries because they are on discount.
Mistake 3: Over-diversification
More funds does not mean more safety. Having 15 mutual funds, many of which hold the same underlying stocks, gives you the illusion of diversification while multiplying your complexity and, often, your costs.
Three to five well-chosen funds across different categories is sufficient for most investors. Beyond that, you are adding confusion, not protection.
Mistake 4: No emergency fund
This one is foundational and frequently skipped. An investor without an emergency fund of 6 months of expenses is one medical bill or job loss away from being forced to redeem their long-term investments at the worst possible time.
Build your emergency fund first — in a liquid fund or a high-yield savings account. Then invest. This is not optional. It is the foundation on which everything else rests.
Mistake 5: Ignoring insurance
A family that loses its primary earner without adequate term insurance coverage loses everything — regardless of how well the investments were structured. A single large medical event without health insurance can wipe out years of accumulated corpus.
Insurance is not an investment. It is protection. Adequate term life insurance (typically 15-20 times your annual income) and a comprehensive health insurance policy are not optional add-ons. They are prerequisites for any investment plan to actually work.
The one-question audit
Ask yourself: if everything went wrong at once — job loss, health crisis, market crash — would my financial structure survive? If the answer is uncertain, the next step is clear. Fix the foundation before optimising the returns.
Mutual Fund investments are subject to market risks. Please read all scheme related documents carefully before investing. ARN: 351164 | rahulmoney.com