Best portfolio combination? 50% Equity: 50% Debt shows low probability of negative returns – Study

financialexpress.com:

An Investment Portfolio with 50% Equity: 50% Debt can generate meaningful wealth creation in the long term for moderate risk profile investors, according to an analysis by Motilal Oswal Private Wealth. During the period of the analysis spanning over three decades, the 50% Equity: 50% Debt portfolio combination generated a 12% CAGR. 

Motilal Oswal Private Wealth conducted a comprehensive analysis spanning over three decades from 1990 to 2023 (till the end September 2023), evaluating the risk-reward from various portfolio combinations. 

The underlying asset classes for this analysis included Indian Equity, US Equity, Long Maturity Debt, Short Maturity Debt and Gold, all in INR terms.

The portfolio combinations included an Equal Weighted Portfolio across all the aforementioned asset classes, 25% Equity: 75% Debt, 50% Equity: 50% Debt, and 75% Equity: 25% Debt. 

The analysis shows that on a pre-tax basis, the Equal Weighted Portfolio has the best risk-reward, i.e. compounding return per unit of risk (standard deviation). 

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However, the post-tax return from this combination may not be efficient going forward since the capital gains from all asset classes, except Indian Equity, would be taxed as short-term capital gains.

“A 50% Equity: 50% Debt portfolio has the potential to generate meaningful wealth creation in the long term, as demonstrated by the 12% CAGR that this combination has generated over the period of analysis,” Motilal Oswal Private Wealth said in a statement. 

Since Equity is an asset class which offers the highest long-term compounding return, as expected, the 75% Equity: 25% Debt combination has the highest CAGR at 12.9%, however the underlying