Won’t diversification reduce my returns compared with just holding 100% equity?

Published 19 September 2026

Ritik from Mumbai

If debt, gold and international equity can underperform Indian equity for years, doesn’t adding them just reduce my overall returns? What am I actually getting in exchange?

Sachin Kabra Co-founder Foliyo (SEBI RIA No: INA000023454), ex-Director HDFC Private Wealth, Business Head Motilal Oswal AMC LinkedIn

During a strong equity bull market, yes, a diversified portfolio will usually lag 100% equity.

Debt may feel unnecessary. Gold may appear unhelpful. International exposure may disappoint.

But diversification can help in other ways. A shallower fall leaves more capital available to compound. It also gives you assets to rebalance from when equity falls below its target weight.

In the five-year rolling analysis discussed in the video, Indian equity delivered an average 12.8% a year versus 12.4% for the multi-asset mix. But the worst five-year return was -1.4% a year for Indian equity versus positive 5.3% for the multi-asset portfolio, while volatility was also much lower for the multi-asset mix.

The promise of asset allocation is not maximum return in every period. It is a narrower range of outcomes and lower dependence on one asset class.

“The claim is not this mix always beats equity. The claim is that combining assets can materially reduce the cost of being wrong about one asset class.”

This is not personalized investment advice. Your goals, time horizon, risk tolerance and financial situation may be different, so assess your own situation and discuss it with your financial advisor.

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