Teflon or at least gold-coated

Summary: Everyone wants high returns, but not everyone can handle the swings that come with them. This piece dives into how mixing asset classes can not only smooth your investment ride, but also improve long-term returns. Here’s the surprising science behind asset allocation. The Sensex has compounded at about 14 per cent annually since India’s liberalisation in the early 1990s. Yet, if one looks at yearly returns, there is almost no year where the Sensex hasn’t fallen 10–20 per cent, and sometimes 30–50 per cent, from peak to trough. This is why compounding in Indian equities is tempting in theory but tough in practice. Over the last 15 years, equity (BSE Sensex TRI), debt (CRISIL Short Term Bond Index), gold (MCX Gold INR) and global equities (S&P 500 INR) have taken turns at the top. Equity delivered positive returns in 11 of 15 years, with highs like FY21’s 69.8 per cent and lows like FY20’s -22.9 per cent. Debt was positive every year, offering stable and consistent, but low returns. Gold shone in crisis years but lagged elsewhere. If you’re heavily into equity and expect to maximise outcomes, you must: Be one of those Teflon-coated equity investors who don’t lose sleep over market declines. Tolerate swings of -50 to +50 per cent in a year. Not depend on investments for near-term needs. Trust that equities follow long-term economic and corporate growth. If you don’t tick on every o