Sharing an important lesson on asset allocation, Kalpen Parekh, Managing Director and CEO of DSP Mutual Fund, said that investors who ignore either equities or defensive assets like gold and bonds risk undermining long-term wealth creation.
In a social media post on X, Parekh highlighted the importance of owning “both buckets”, arguing that growth and stability are essential for compounding wealth.
Not owning stocks will mean no compounding and beating inflation, Parekh wrote. However, he cautioned, “Not owning gold & bonds means a very volatile portfolio that could force us to sell stocks in panic at lows and still lose compounding. Both buckets matter.”
The case for equities
Equity investing has, over the years, outpaced inflation over long investment horizons, making it a crucial asset class for investors seeking wealth creation. To put it in perspective, Nifty’s 10-year CAGR stands at 13.5%.
Investors may struggle to grow their purchasing power meaningfully if they miss out on equities’ power of compounding.
Why gold and bonds matter
Parekh’s comments also stress the stabilizing role of gold and fixed-income instruments.
Though gold’s recent rally has eclipsed the equity returns, investors must understand that the commodity succumbs to long periods of consolidation as well. In the current setup of high equity volatility, gold has emerged as a hedge against economic uncertainty and geopolitical stress.
As Nifty has struggled to offer meaningful returns with just 9% rise in a year, exposure to gold would have added value amid its 70% rally during this period.
Bonds, meanwhile, provide relatively stable returns and regular income, helping cushion portfolios during equity market corrections.
A portfolio lacking allocation to assets like gold and bonds can trigger behavioral mistakes, including panic selling at market lows — a move that disrupts compounding and locks in losses, according to Parekh.
A class in asset allocation
Parekh’s broader message aligns with a long-standing investment principle: asset allocation matters more than market timing.
By maintaining exposure to both growth-oriented assets (equities) and stability-oriented assets (gold and bonds), investors can aim to capture upside during bull markets while mitigating downside risks during corrections.
Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions.
