Market moves are unpredictable. Your portfolio doesn’t have to be.

But history shows that markets move in cycles—shaped by economic indicators, interest rate shifts, geopolitical developments, and corporate performance. Every correction has ultimately been followed by recovery and growth. For seasoned investors, the key lies in patience, discipline, and a well-structured portfolio that can dynamically adapt to changing market conditions.

Staying invested through market ups and downs can be challenging, but multi-asset funds make it easier. By diversifying across equity, debt, gold, and real estate investment trusts (REITs), these funds smooth out the ride. Strong performance of one asset class can help cushion the impact of another that’s lagging, keeping your portfolio stable.

Diversification shield

Asset allocation is a cornerstone of long-term portfolio success, offering a strategic way to balance risk and reward. One of its most valuable advantages is downside protection. Since asset classes often move differently—sometimes even in opposite directions—diversifying across them helps cushion a portfolio against sharp market swings. 

Also read: Money and happiness: The chicken-and-egg problem

For instance, while equities have delivered a 10-year CAGR of 11.7%, fixed income returned 7.4%, and gold came close with 11.3%. But zooming in on just the past year, gold surged 30.6%, outperforming equity (9.6%) and fixed income (8%). This illustrates how different asset classes thrive in different economic phases, making thoughtful asset allocation not just a buffer against volatility but a tool to enhance overall performance.

Another key advantage of asset allocation is its role in long-term wealth creation. Different asset classes tend to perform better at different times, with the winners constantly rotating depending on market conditions. By diversifying investments, investors can capture gains from various sectors and markets, reducing the overall risk of the portfolio while increasing its potential for higher returns. 

Also read: Drive smart, pay less: How your habits can lower your car insurance costs

This dynamic approach not only enhances long-term returns but also reduces the risk of underperformance during volatile market phases. 

For example, over the past decade, a balanced portfolio with 65% in equity, 20% in fixed income, and 15% in gold delivered a robust 11.3% annualised return—closely tracking the 11.7% CAGR of pure equity investments. This demonstrates how multi-asset funds can offer equity-like returns while potentially lowering overall portfolio risk.

Mindful money

Lastly, a well-structured asset allocation strategy can provide peace of mind for investors. With reduced portfolio volatility, investors are better equipped to weather the ups and downs of the market without the need for constant adjustments or fear of market timing. 

This stability allows investors to remain invested through various economic phases, improving their overall investing experience and confidence in their financial journey. Asset allocation, in essence, removes much of the anxiety associated with changing market dynamics, making it easier for investors to stay focused on their long-term goals. 

The annualised volatility for the same portfolio during this period has been 11.5% which is much lesser than 16.6% for equity. Therefore, multi asset funds have generated better risk adjusted returns over long term.

Thus, for investors seeking stability amid market uncertainties, multi-asset funds provide a structured, hands-off approach to wealth creation. 

Smart asset allocation and diversification remove the burden of constant market monitoring and timing. Long-term financial success hinges on staying invested. A multi-asset strategy offers peace of mind, designed to navigate market volatility while capturing growth. In uncertain times, invest wisely, remain patient, and let diversification work for you.

Also read: How financial rules of thumb help and hurt investors

Mahesh Patil, CIO, Aditya Birla Sun Life AMC Ltd.

Data as on 31 December 2024; Indices used: Equity – Nifty 50 TRI; Gold – Gold prices in ₹ terms; Fixed Income – CRISIL Short Term Bond Index; ^Multiple Asset Portfolio refers to model portfolio constructed with 65% in Equity, 20% in Fixed Income & 15% in Gold, rebalanced yearly.