This table was published recently by Mint. Different investment options have been ranked in order of their return performance – from the highest to the lowest for each calendar year in the 10-year period – 2013 to 2023. They broadly fall under the following 4 asset classes – Fixed Income (Debt), Equity, Gold and Real Estate.
Can you decipher any pattern in the returns of the asset classes above, from one year to the next?
No, you will not able to, because there isn’t any. These asset classes are negatively co-related and perform differently under different economic conditions. Hence, the winning asset class with the highest return changes every year.
The absence of any pattern in this table underlines the importance of broad-based asset allocation in a portfolio. Asset allocation simply means distributing your money across different asset classes.
Predicting & chasing the best performing asset class every year is a losing game. Instead, it is prudent to build a balanced portfolio, based on your goals, time horizon and risk appetite. Even if one asset class does not perform in a given year, the others will. The weighted return of your portfolio will not be singularly influenced by any one asset class. Asset allocation thus enables to achieve optimum diversification, spread the risks and help competitively steer through all market cycles.