Why Diversification Matters

When one asset class falls, another may hold steady or rise. A well-diversified portfolio smooths out the ride without necessarily sacrificing returns.

The Core Asset Classes

| Asset Class | Role in Portfolio | Risk Level | |---|---|---| | Large-cap equity | Long-term growth engine | Medium-High | | Mid/small-cap equity | Higher growth, higher volatility | High | | Debt (bonds, debt MFs) | Stability, capital preservation | Low-Medium | | Gold / Gold ETF | Inflation hedge, crisis buffer | Medium | | Real estate / REITs | Income + inflation hedge | Medium | | International equity | Geography diversification | Medium-High |

A Simple Allocation Framework by Goal Horizon

Aggressive (10+ year horizon, age 25–35): 70% Equity | 20% Debt | 10% Gold

Balanced (5–10 year horizon, age 35–50): 50% Equity | 35% Debt | 15% Gold

Conservative (< 5 year horizon or near retirement): 30% Equity | 55% Debt | 15% Gold

Common Diversification Mistakes

  • Over-diversification: Owning 15 mutual funds that all hold the same Nifty 50 stocks is concentration, not diversification.
  • Ignoring correlation: During a crisis, many assets fall together. True diversification includes uncorrelated assets like gold and international equity.
  • "Set and forget" too long: Rebalance once a year to bring allocations back to target.

    • > Altius Tip: 3–5 mutual funds across equity, debt, and gold cover 90% of a good diversified portfolio. More funds add complexity without proportional benefit.