Financial experts advise against the rigid 70:30 rule, recommending investors personalize their asset allocation based on risk tolerance and financial goals instead.
As Indian stock markets face a downturn, with benchmark indices closing lower in three of the last four sessions, investors are questioning the traditional 70:30 equity-to-debt portfolio rule. Financial experts are cautioning against this one-size-fits-all approach, urging investors to instead tailor their asset allocation to personal goals and risk tolerance, especially in the face of current market uncertainty.
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The primary argument against a fixed ratio is its inability to account for individual circumstances and market dynamics. “Asset allocation should always be tactical and personalised, based on an investor’s risk appetite, financial goals, and time horizon, not a fixed rule like 70:30 equity-to-debt,” stated Yash Sedani, Assistant Vice President at 1 Finance. He warned that "indiscriminately following such a static allocation may not serve every investor well," especially as different asset classes respond differently to market cycles.
Instead of reacting to market news, experts recommend a more disciplined approach. “Asset allocation should not swing with headlines. Build it around objectives, risk tolerance, and liquidity, then review and rebalance at set intervals,” advised Feroze Azeez, Joint CEO of Anand Rathi Wealth Limited. He highlighted that the low correlation between equities and debt helps smooth outcomes over time, making them the core of a balanced portfolio.
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An investor's time horizon should be a key determinant of their debt-equity mix. For shorter-term goals, a more conservative allocation is recommended. “As a practical guide, for goals due in two to three years, a 70:30 mix between equity and debt balances growth with stability,” Azeez explained. “For horizons beyond three years, an 80:20 mix can improve long-term compounding while keeping drawdowns manageable.” He also stressed the importance of diversifying within equities, suggesting a 55:20:25 split across large, mid, and small caps to reduce concentration risk.
The current reassessment comes as Indian markets show signs of weakness, fueled by geopolitical uncertainty. Jashan Arora, Director at Master Trust Group, noted that the market is expected to "stay rangebound" and will "struggle to price in geopolitical risk," such as potential tariffs. This volatility has prompted investors to reconsider traditionally safe allocation strategies like the 70:30 rule.
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The consensus among financial experts is clear: the 70:30 debt-equity rule should be seen as a general guideline, not an unbreakable law. In the current volatile market, a personalized and dynamic approach to asset allocation is crucial. Investors are advised to regularly review their portfolios with a financial advisor to ensure their strategy aligns with their specific financial goals, time horizon, and risk tolerance, rather than adhering to a rigid, outdated formula.
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