How much equity should I hold in my portfolio?

Last Updated on February 12, 2022 at 6:20 pm

A few days ago, I gave a talk at a CFA Society meeting. One of the modules is covered in this post: How much equity should I hold in my portfolio? We know that equity has the potential offer better returns than fixed income (emphasis on potential) but how much equity – either as direct equity or as mutual funds or as both should I hold in my portfolio? Let us find out how volatile different equity exposures have fared over the last 20+ years.

I would bet that most people who claim that they have a high-risk appetite do not know what exactly that means. For if they do, they will never claim so. Also claims like, “I am young, so I will have 80-90% equity in my portfolio or 100-age exposure” do not highlight just how risky holding so much equity can be.

This post is part of Resolve is a series of steps on investing and portfolio management.

Step1: How to quickly select equity mutual funds and build a diversified portfolio

🔥Secure your future with our Robo-advisory tool trusted by over 3,500 investors and advisors. From effortless retirement planning to funding your children’s biggest dreams, turn your financial goals into reality. 🔥

Subscribe for money management solutions via email! (Link takes you to our email sign-up form) Join 32,000+ readers in our community.

👉 New Tool Alert! NaviPlan: A Privacy-Focused Multi-asset Tracker and Goal Planner 👈

Step 2: How to Quickly Decide: Should I stay invested or exit my mutual fund?

Step 3: Do we need to time the market?

Step 4: Why we need to gradually pull out of equity investments well before we need the money!

How much equity should I hold in my portfolio?

The reasoning used in this video and in step4 mentioned above, form the main framework of the Freefincal Robo Advisory Software Template. Here are some slides from the above talk.

These are the two funds used in the study.