Ideal allocation for achieving 15% CAGR in the long term?
Hi Mani,
Thank you for your wonderful blogs. They have made me wiser.
My question is, what would be the ideal allocation for equity, debt and Gold/Silver/US market for achieving long term growth considering current market circumstances?
If your long-term goal is a 15% CAGR, the starting point is to accept one hard fact: such returns are only realistically possible with a high equity exposure.
Historically, equities are the only asset class that has delivered this kind of growth over long periods. But these returns would come with volatility. So, the mindset must be tuned to hold on to your portfolio even when returns are all red.
For most investors, this kind of return expectation would mean keeping 65–75% of the portfolio in equities.
But here are a few points you can note:
- This can be split between Indian equities and a small portion of international equity exposure. But remember, the international exposure is mainly for diversification rather than for higher returns.
- Furthermore, debt should not be looked at as a return enhancer but as a stability tool. Around 15–25% allocation to debt instruments like high-quality debt funds. It helps to reduce volatility and provides liquidity during market downturns. This portion (debt exposure) will allow you to stay invested in equities during bad phases without panic-selling, which is critical for long-term compounding.
- Gold, silver, or US market exposure should be limited to 5–10% each. Make sure to judge your comfort level before opting for US market exposure. Even if you decide to do so, go through the mutual fund route.
- Gold and silver will act as a hedge during crises.
- US equities add geographical diversification.
It is essential to remember that neither gold/silver nor US equities should replace the core Indian equity allocation of 65-75%. If 15% CAGR is the target, your Indian equity exposure must be set at these levels.
After you’ve built your portfolio like this, the next step is to hold on to it for a very (very) long term – stay invested through market cycles. Invest when the market is bleeding and do nothing when the market is at its peak (no selling).
Moreover, you must also learn the skill of periodic rebalancing.
Disclaimer: This content is for informational purposes only and should not be considered investment advice.
