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00:00You've heard it all before, right?
00:02Your equity allocation should be 100 minus your age.
00:04Gold, keep it to 5% of your portfolio tops.
00:07Higher the return, the higher the risk you need to take.
00:09This is the kind of investment advice we've all grown up with.
00:12It's been repeated in books, shared in forums,
00:14and handed down as gospels by self-proclaimed experts.
00:17But here's the uncomfortable truth.
00:19Most of this advice has absolutely nothing to do with the Indian market.
00:22So the question is, where did these rules come from?
00:24They're largely borrowed from Western models rooted in data from the US,
00:27mostly copied from legends like the Benjamin Graham, Peter Lynch, or Warren Buffet.
00:32While their principles are sound, they are primarily addressing the US audience.
00:35Their risk profiles, their tax laws, the currency stability that they have,
00:39that is all very US-specific.
00:40But we are not in the US.
00:41So here's the real question.
00:43Should Indian investors be following advice
00:44designed for an entirely different financial ecosystem?
00:47Let's break this down a bit, right?
00:48The S&P 500 has been around since 1957.
00:51The India's 50-50, as you know, was formally launched only in 1996.
00:54The US market cap is over 50 trillion,
00:56whereas India's is roughly 4 trillion, just less than 10% of its size.
00:59The US equity ownership is deeply institutional.
01:01In India, the retail participation has just picked up steam in the last five years.
01:04So if we copy-paste US-centric asset allocation models into our Indian portfolios
01:08without questioning them,
01:09we risk building a financial house on a completely wrong foundation.
01:12Now ask yourself, has there been any serious India-based research
01:15that tells us what asset allocation actually works here?
01:17Back-tested with Indian data, spanning real economic cycles,
01:20reflecting Indian investor behavior?
01:21Well, the good news is, there is.
01:23One team has done the heavy lifting, and they've done it right.
01:25The good folks at Capital Mind have conducted a fantastic multi-decade backtest
01:29using Indian market data
01:30to find out which asset allocation model actually delivers,
01:33not in theory, but in practice.
01:34In this video, I'm going to break down the key findings from this research,
01:38walk you through different asset allocation models they tested,
01:40compare their historical performance
01:42in terms of returns, risks, drawdowns, and volatility,
01:44and finally, show you which model came out on the top
01:47and why this could change the way you think about building your wealth.
01:50So if you've ever asked yourself,
01:51what is the right allocation strategy for me as an Indian investor,
01:54this video probably is going to be a total eye-opener.
01:56So let's get started.
01:59If you're new here, welcome.
02:00My name is Vivek, and I'm a financially independent algo-freedom.
02:03This channel is all about building a community of like-minded people
02:05who are passionate about financial freedom, personal finance,
02:07and wealth creation.
02:08I share the tools, strategies, and methods
02:10that help me achieve my freedom
02:11and my overall journey and the experience.
02:16Now, let me ask you this.
02:17Have you ever walked into a financial planner's office
02:19and filled out one of those online risk profile forms?
02:22Chances are, within minutes,
02:23you're slotted into one of these three magical buckets,
02:25the conservative, moderate, and aggressive.
02:28But here's a problem, right?
02:29Most of the time, this categorization is done
02:31without any real understanding of you,
02:32your actual goals, your life situation,
02:34or even how you emotionally handle market volatility.
02:37You're just labeled.
02:38You hear things like,
02:39oh, you're 50, then you must be conservative.
02:42Oh, you've just started your career.
02:43You should be aggressive.
02:44You want to retire in 10 years?
02:45So let's make it moderate, right?
02:47Why?
02:47Where's the data behind this?
02:49Where's the noirs, right?
02:50These labels sound scientific,
02:51but they're often lazy, vague,
02:52and dangerously oversimplified.
02:54And more importantly,
02:55they are recycled from Western financial planning templates.
02:57They may have zero relevance to us,
02:58which is Indian investors.
03:00Because just think about it, right?
03:01A 50-year-old in the US
03:03might have access to Social Security,
03:04has 401ks,
03:05employee-matched retirement plan,
03:06and a fully functional health insurance system.
03:09But what about a 50-year-old in India?
03:11Probably still supporting family,
03:12maybe paying off a home loan,
03:14juggling rising health costs,
03:15and planning for the kids' weddings.
03:16So it's the same age,
03:18but radically different financial realities.
03:19So should they both be classified conservative
03:21just because they share a birth year?
03:23Of course not, right?
03:24This is how so many portfolios are constructed in India,
03:26using templates that don't think,
03:28don't question,
03:29and definitely don't fit, right?
03:30And here's the kicker.
03:31Once you're boxed into one of these categories,
03:33your entire allocation gets dictated by it.
03:35You might be told,
03:36hey, since you're conservative,
03:37we'll keep you 80% in debt,
03:39and 10% in gold,
03:40and 10% in equity.
03:41Boom,
03:42your wealth strategy is already set.
03:43But based on what?
03:44A birthday and a gut fee?
03:46If you personally ask me,
03:47that's not advice,
03:47that's just guessing, right?
03:48And in a market as complex
03:49and fast evolving as India,
03:51guessing can be very expensive.
03:52So what we actually need instead
03:54is advice that's,
03:55number one,
03:56evidence-based,
03:57number two,
03:57backed by real Indian data,
03:59and number three,
04:00tested across multiple market cycles.
04:01And that's exactly where
04:03the capital mine research
04:04changes the game.
04:05The capital mine research
04:06has considered data
04:07going back up to 30 years.
04:09To keep the overall research
04:10a bit simple and straightforward,
04:11they've considered only
04:12four asset classes,
04:13which is domestic equity,
04:13which is Indian stock market.
04:15For the debt,
04:16they've considered bonds and FDs,
04:17gold primarily as a hedge,
04:19and finally,
04:19U.S. securities as well,
04:20so that it gives you
04:21that global diversification.
04:23So what they've done is
04:23they've built actually
04:24six asset class models,
04:26starting with the first one
04:27called the token.
04:28This is where you're heavy
04:29on Indian equity,
04:30so 70% of this
04:31is in India equity,
04:3310% on debt,
04:3310% on gold,
04:34and 10% on U.S. equities.
04:37The next one
04:37is called the textbook.
04:39This is the textbook allocation
04:40of say 50% on Indian equities,
04:4120% debt,
04:4210% gold,
04:43and 20% on U.S. equities.
04:44The third one being
04:45the safety first,
04:45which is a very conservative portfolio
04:47of only 40% in the Indian equities,
04:4950% debt,
04:5010% gold,
04:51and you have zero allocation
04:52for the U.S. equities.
04:54And the standard equal allocation,
04:56which is the 25%
04:57across all four categories.
04:59The gold finger,
05:00I was surprised
05:01as to why they considered this,
05:02because this is 50%
05:03domestic equity
05:03and 50% gold
05:04and nothing else
05:06on debt or U.S. equities.
05:07And finally,
05:08the stars and stripes,
05:09as the name suggests,
05:10it's 50% on Indian equity
05:11and 50% directly
05:12on U.S. equity.
05:13And in addition to these six,
05:14they've also considered
05:14a seventh model,
05:15which is the nifty model,
05:17which assumes that,
05:17you know,
05:18you invest 100%
05:19of your allocation
05:19into domestic equities.
05:20So they've taken
05:21these seven models
05:22and then back tested it
05:23for 30 years.
05:24And this is how
05:25these models performed.
05:26I think a couple of surprises
05:27here,
05:27the first one,
05:28the stars and stripes
05:29came out on the top
05:29overall with about 16%.
05:31And the second big surprise
05:32is the gold finger.
05:33I personally did not expect
05:34this to come second
05:35in the list,
05:35which is the 50% gold.
05:36If you remember,
05:3750% gold and 50% Indian market,
05:38that came as the second.
05:40And the other four,
05:41which is namely textbook,
05:42nifty, token, and equal,
05:43pretty much all around
05:43the 14% mark.
05:44And safety first,
05:45which is the most
05:46conservative model,
05:46which was very debt heavy,
05:48came at the last
05:48with about 12.3% overall.
05:50Well, the returns
05:51is only part of the story, right?
05:52I'm sure you definitely
05:53want to know
05:53how volatile
05:54these models were
05:55and that's where
05:56we go into volatility
05:57next.
05:59Again,
06:00no surprise here
06:01or no marks
06:01for guessing.
06:02The least model
06:04that had the least
06:04drawdown
06:05is the safety first,
06:06quite understandably
06:06and equal as well.
06:08And then textbook
06:09and token
06:09pretty much
06:09around the same category
06:11there.
06:12And if you consider
06:12the gold finger,
06:13the nifty only portfolio
06:14and the star and stripes,
06:15they all pretty had
06:16very steep drawdowns.
06:18So we've looked at
06:19the overall returns.
06:20We've also looked
06:20at the drawdown data.
06:22Let's slice this up
06:23even a little better now.
06:24And then we look
06:25at the analyzed returns
06:26by allocation strategies.
06:27So they've given
06:28the data for 1, 3, 5,
06:2910 and 15 years.
06:30So if you consider
06:30short term being
06:31like three years,
06:32midterm being five years
06:33and then the long term
06:34being 15 years,
06:35if you look at the
06:35one and the three years,
06:37equal weightage portfolio
06:38has given much,
06:39much better returns
06:39of about 18.3.
06:40But this really being
06:41short term,
06:42we can't put a lot
06:43of weightage to this one.
06:45If you look at
06:46the medium term,
06:47star and stripe
06:48seems to have done
06:48slightly better
06:49than equal weightage.
06:50But if you take
06:51the long term,
06:51it's quite interesting.
06:52Pretty much all of it
06:53are around the same
06:55levels,
06:56only with the
06:57stars and stripes
06:57being slightly better.
06:58I mean,
06:59it has got a couple
06:59of points above
07:00the rest of the ones.
07:01That's an interesting
07:02observation because
07:03what this tells us
07:03which people have
07:04always been telling
07:05in the long term,
07:05it doesn't really matter
07:06as long as you're
07:07consistently investing
07:08just one or two
07:09points here or there.
07:10But otherwise,
07:10if you really see,
07:11the overall returns
07:12doesn't really matter.
07:14I'm sure you have
07:15this question in your
07:15mind.
07:16What's the final verdict?
07:16What's the conclusion
07:17of all this study?
07:18Right?
07:20So what this study did
07:21is they considered
07:22three main factors,
07:23which is the growth,
07:23stability and diversification.
07:24And they put a score
07:25across all seven models
07:27that they considered.
07:28And then what they
07:29concluded was the textbook
07:31style, which is 50%
07:32domestic equity,
07:3320% debt,
07:3310% gold and 20%
07:34US equity gave the most
07:36optimum performance
07:37across all three factors.
07:39Personally,
07:39this is the model
07:40that I'm currently
07:40following,
07:41although I'm going
07:42a little light
07:43on US equity going
07:43forward because I feel
07:45that the overall edge
07:45there is lost.
07:47So I'm going a bit
07:48conservative on that.
07:49But overall,
07:49I'm basically sticking
07:50to this model
07:50for quite some time now.
07:52But if you are
07:52somebody who is
07:53very aggressive,
07:54the model also suggests
07:55that the stars and stripes,
07:56which is 50% domestic
07:57and 50% US equity
07:58could be the one
07:58because as we saw,
07:59it gave you a clear edge
08:00of about 2% to 3% more
08:02than all of the other
08:03six models.
08:04But however,
08:05the drawdown,
08:05as you saw,
08:06was close to about 60%.
08:07So if you are somebody
08:08who's kind of okay
08:09with that kind
08:10of drawdown volatility,
08:11for those aggressive
08:12investors,
08:13stars and stripes
08:13is what is recommended.
08:15And for the select few
08:16who are very conservative,
08:17who can't stand
08:18a lot of volatility,
08:19the equal weight
08:20as we saw
08:21was only about
08:22two points down
08:23from the highest returns.
08:25But that delivered
08:26that kind of returns
08:26with half the drawdown
08:27as the stars and stripes.
08:29So this is definitely
08:30not a bad choice at all.
08:31And that was the
08:32conclusion of that study.
08:33Given these conclusions
08:33were data backed,
08:34it gives us better
08:35confidence and peace of mind.
08:36Let me know
08:37what you think of this study
08:37and whether you agree
08:38with its findings.
08:39I'm sure some of you
08:40have different views
08:41and I would love to hear that.
08:42So please put those
08:42in the comments.
08:43That's all I had
08:44for this video.
08:44Hope you like this content.
08:45I'll see you soon
08:46in another one.
08:47Until then,
08:47stay safe,
08:47stay happy.
08:49If you genuinely
08:50found this video useful,
08:51please consider subscribing
08:51and liking the video.
08:52And I will see you
08:53soon in another video.
08:54And until then,
08:54take care
08:55and happy trading.