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A report released by Motilal Oswal Private Wealth reveals that an investment portfolio with 50% each allocation to equity and debt has generated CAGR of 12.20% between 1990 and 2023 compared to 12.90% of investment portfolio with 75% allocation to equity and 25% allocation to debt.
This indicates that a balanced portfolio with 50% allocation to equity and debt each can generate healthy returns with less volatility.
The report has conducted a comprehensive analysis spanning over three decades from 1990 to 2023 (till end Sep’23), evaluating the risk-reward from various portfolio combinations. The underlying asset classes for this analysis include Indian equity, US equity, long maturity debt, short maturity debt and gold, all in INR terms. The analysis was done on a pre-tax basis.
Let us look at the findings:
|
Portfolio Combinations |
Equal Weighted Portfolio |
25% Equity & 75% debt |
50% Equities & 50% Debt |
75% Equities & 25% Debt |
|
CAGR from 1990 to 2023 (end Sep’23) |
11.7% |
10.6% |
12.2% |
12.9% |
|
Standard Deviation (annualized) |
8.0% |
8.4% |
14.3% |
20.3% |
Further, the report has also analysed probability of negative returns. It shows that the 50:50 portfolio is a well-balanced portfolio for moderate risk profile investors. The return distribution shows a low probability of negative returns with around 54% of observations in the double-digit category.
On the other hand, the 75% equity: 25% debt would be suitable for aggressive risk profile who would prefer their portfolio to generate higher compounding over the long term.
Let us look at the table to know more:
|
Returns Distribution |
% Observations |
|||
|
Portfolio Combinations |
Equal Weighted Portfolio |
25% Equity & 75% debt |
50% Equities & 50% Debt |
75% Equities & 25% Debt |
|
Negative Returns |
0% |
0% |
3% |
7% |
|
0% to 6% |
10% |
6% |
13% |
22% |
|
6% to 10% |
24% |
50% |
29% |
17% |
|
10% to 15% |
54% |
37% |
32% |
27% |
|
15% & above |
12% |
7% |
22% |
28% |
