WHY IS THERE A NEED TO RESET RETURN EXPECTATIONS?
For much of the past few years, equities have done the heavy lifting in investor portfolios, delivering strong returns after the post-Covid correction. That phase is now showing signs of fatigue.
With valuations still not cheap, earnings growth uncertain and global risks rising, it may no longer be realistic to expect equities alone to drive portfolio returns.
In this environment, investors need to rely on a broader mix of assets. Indian equities, international equities, debt, REITs, InvITs and gold can each play a role in generating returns and managing risk. A diversified portfolio is better positioned to absorb shocks and deliver more stable returns across market cycles.
AND HOW CAN INVESTORS ACHIEVE THIS?
The approach should be aligned with an investor’s risk appetite and ability to handle volatility.
For relatively conservative investors, a balanced portfolio could involve allocating 40% to equities, 10% to international equities, 35% to fixed income and 15% to precious metals. This mix aims to balance growth with stability while cushioning downside risks. Investors can either build this allocation through individual.
SO, WHAT KIND OF RETURN EXPECTATIONS SHOULD INVESTORS HAVE?
That is the tricky part in an uncertain environment. The focus needs to shift from absolute returns to riskadjusted returns.
The widely held expectation of 12–15% annual returns from equities may not hold in the near term. While such returns are possible over a cycle, investors need to be mindful of the risks from slowing earnings growth, elevated valuations and global uncertainties.Some financial planners believe that even 8–10% returns could be considered reasonable in the current environment, especially if portfolios are structured with an emphasis on capital protection and stability.
The idea is not to lower ambition, but to align expectations with the realities of a more volatile market cycle. funds or opt for a multi-asset fund that manages such diversification within a single product.
More aggressive investors with a higher tolerance for sharp swings may choose to increase equity exposure, particularly to midand smallcap segments or international markets, to enhance return potential. However, this comes with higher drawdown risk and requires a longer investment horizon.