Closing in from all sides!

Retail investors usually have access to four relatively liquid asset classes: domestic equity, international equity, debt, and gold. And depending on their risk appetite, it’s quite common for investors to have two or three preferred asset classes.

For instance, more adventurous folks might ignore gold and debt altogether, while retired investors might not be very interested in international equity.

In any case, a portfolio with holdings in all four asset classes is often perceived as being over-diversified, and thus spread too thin to generate significant returns.

But as with most things, the devil is in the details. It turns out that if you build a multi-asset portfolio with a rather conservative asset allocation and maintain it over the long term, you could generate equity-level, inflation-beating returns — with much less volatility than equities!

Don’t take our word for it: look at the data below.

As you can see, in all the markets under consideration, multi-asset returns either exceeded or came close to exceeding domestic equity returns in local currency terms over the last 20 years.

At the same time, the standard deviation (a measure of volatility) of multi-asset returns was significantly lower than that for domestic equity returns. The main reason for this is that usually, a period that is dismal for one asset class proves to be a good period for another asset class.

A final critical point to note is that over this 20-year period, gold outperformed equity markets in local currency terms across all markets.

Thus, it can be argued that multi-asset investing is not just another ho-hum strategy among many others — instead, perhaps it deserves to be the go-to strategy for portfolio management.

Indeed, it might be the most reliable way to create multi-generational wealth… if you can just manage to put up with the boredom!

One more monthly instalment in a boring fund (my SIP)

Boring as it owns 3 assets

- world and Indian stocks
- bonds of india
- gold & some silver

Generally these asset classes don’t do well at the same time

Hence, this fund will always own the poor performing asset class

— Kalpen Parekh (@KalpenParekh) December 30, 2024

For more actionable insights backed by data and analyses, we invite you to read the latest edition of Netra in its entirety.

Check our Netra blogs for January 2025:

• Stairway to heaven? Depends.
• The marriage that never was!