How much equity should I hold in my portfolio?

Published: July 15, 2018 at 8:39 am

Last Updated on

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

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.

Read more:

Are we now in a bear market? If a Bull Market can be this bad!

Sensex Charts 35 year returns analysis  stock market returns vs risk distribution

 

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About the Author Pattabiraman editor freefincalM. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. since Aug 2006. Connect with him via Twitter or Linkedin Pattabiraman has co-authored two print-books, You can be rich too with goal-based investing (CNBC TV18) and Gamechanger and seven other free e-books on various topics of money management. He is a patron and co-founder of “Fee-only India” an organisation to promote unbiased, commission-free investment advice. He conducts free money management sessions for corporates and associations on the basis of money management. Previous engagements include World Bank, RBI, BHEL, Asian Paints, Cognizant, Madras Atomic Power Station, Honeywell, Tamil Nadu Investors Association. For speaking engagements write to pattu [at] freefincal [dot] com
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