If you are investing in the stock market or in equity mutual funds, asset allocation is a must to reduce the risk in the portfolio. Here, in this article, I will explain to you about fixed asset allocation with Nifty 50 and Gold as asset classes in the portfolio with a backtest with the help of nifty and gold historical values.

What is fixed asset allocation…

Fixed asset allocation is a strategy to allocate a specific ratio of equity and debt (gold, debt funds, etc.).

In addition, this strategy is also called the buy and hold strategy.

And rebalancing of the portfolio is usually done once a year.

Moreover, rebalancing is done if the ratio weights change due to market movements.

Fixed asset allocation strategy back testing with nifty and gold allocation with back testing…

Here, for the backtesting purpose, I took gold roi and nifty roi from 1991 to 2024.

In addition, I have assumed that you have invested Rs. 1,00,000 in 1991.

And assumed that the rebalancing is done once in a year.

Moreover, asset allocation% in nifty and gold assume is nifty 80% and gold 20%.

What happened if 100% is invested in Nifty 50? with back testing…

Year     Nifty ROI                    Investment at beg of year          Investment at the end of the year

1991	86%	100000	186074
1992	30%	186074	242448
1993	42%	242448	345116
1994	9%	345116	374765
1995	-24%	374765	285328
1996	4%	285328	296694
1997	17%	296694	345913
1998	-18%	345913	283685
1999	79%	283685	507054
2000	-19%	507054	411213
2001	-17%	411213	341470
2002	2%	341470	346995
2003	79%	346995	619741
2004	9%	619741	673545
2005	36%	673545	918235
2006	40%	918235	1281504
2007	54%	1281504	1967628
2008	-51%	1967628	970272
2009	71%	970272	1656333
2010	18%	1656333	1960957
2011	-23%	1960957	1517563
2012	26%	1517563	1913793
2013	3%	1913793	1978010
2014	35%	1978010	2673625
2015	-5%	2673625	2535970
2016	3%	2535970	2608914
2017	27%	2608914	3325754
2018	2%	3325754	3398697
2019	15%	3398697	3893714
2020	15%	3893714	4464348
2021	26%	4464348	5613101
2022	3.44%	5613101	5806360
2023	18%	5806360	6852441
2024	12%	6852441	7644581
Average	17.7%
			14.0%	CAGR
Stdev	30.79%

If Rs. 1,00,000 was invested in 1991 in nifty 50, the value would be 76 lakh in 2024.

In addition, the CAGR for this investment is 14%.

And the average ROI is 17.7%, while the standard deviation for this investment is 30.79%.

Moreover, the 2nd column in the above table contains the year return on investments for nifty 50.

Finally, the above image shows the volatility of nifty 50 roi from 1991 to 2024.

And there is no rebalancing of the portfolio, as you had invested only in one asset class.

What happened if you had invested Rs. 1,00,000, i.e., allocated 100% in gold in 1991? …

Year      Gold ROI             Investment at beg of year         Investment at the end of the year

1991	8%	100000	108313
1992	25%	108313	135438
1993	-4%	135438	129375
1994	11%	129375	143688
1995	2%	143688	146250
1996	10%	146250	161250
1997	-8%	161250	147656
1998	-14%	147656	126406
1999	5%	126406	132313
2000	4%	132313	137500
2001	-2%	137500	134375
2002	16%	134375	155938
2003	12%	155938	175000
2004	4%	175000	182813
2005	20%	182813	218750
2006	54%	218750	337500
2007	16%	337500	390625
2008	16%	390625	453125
2009	28%	453125	578125
2010	43%	578125	825000
2011	18%	825000	970313
2012	-5%	970313	925000
2013	-5%	925000	875203
2014	-6%	875203	823234
2015	9%	823234	894484
2016	4%	894484	927109
2017	6%	927109	982438
2018	12%	982438	1100625
2019	38%	1100625	1520344
2020	0%	1520344	1522500
2021	8%	1522500	1645938
2022	24%	1645938	2041563
2023	19%	2041563	2434781
2024	2%	2434781	2475000
Average	11%		10.21%	CAGR
Stdev	14.63%

You can see in the above table that Rs. 1,00,000 invested in gold in 1991 became Rs. 24.75 lakh in 2024.

In addition, the CAGR from this investment is 10.21% only.

Moreover, the average return is 11% and the standard deviation is 14.63%.

Again, the 2nd row in the above table contains the roi of gold for every year.

And there is no rebalancing portfolio, as you had invested only in one asset class.

Finally, the above chart image shows the volatility in gold roi.

What happened if you allocated 80% to nifty 50 and 20% to gold in 1991? …

Nifty at beg        Nifty at the     Gold at beg of year          Gold at             Total portfolio         Portfolio                                                                                                                                                            value at           ROI Yearly            Year               of the year       of year            end of year                   end of year

 

80000	148859	20000	21663	170521	71%	1991
136417	177747	34104	42645	220392	29%	1992
176314	250977	44078	42105	293082	33%	1993
234466	254608	58616	65101	319709	9%	1994
255768	194729	63942	65082	259812	-19%	1995
207849	216129	51962	57292	273421	5%	1996
218737	255022	54684	50074	305096	12%	1997
244077	200169	61019	52238	252407	-17%	1998
201926	360918	50481	52840	413758	64%	1999
331007	268441	82752	85996	354437	-14%	2000
283550	235459	70887	69276	304735	-14%	2001
243788	247733	60947	70727	318460	5%	2002
254768	455021	63692	71478	526499	65%	2003
421200	457767	105300	110001	567768	8%	2004
454214	619224	113554	135876	755100	33%	2005
604080	843064	151020	233002	1076066	43%	2006
860853	1321758	215213	249089	1570847	46%	2007
1256678	619690	314169	364437	984126	-37%	2008
787301	1343987	196825	251122	1595109	62%	2009
1276087	1510778	319022	455253	1966031	23%	2010
1572825	1217192	393206	462464	1679656	-15%	2011
1343725	1694566	335931	320244	2014809	20%	2012
1611847	1665933	402962	381269	2047202	2%	2013
1637762	2213720	409440	385128	2598848	27%	2014
2079078	1972035	519770	564755	2536790	-2%	2015
2029432	2087805	507358	525863	2613668	3%	2016
2090935	2665452	522734	553929	3219381	23%	2017
2575505	2631994	643876	721335	3353328	4%	2018
2682663	3073389	670666	926421	3999810	19%	2019
3199848	3668795	799962	801097	4469892	12%	2020
3575913	4496057	893978	966458	5462515	22%	2021
4370012	4520471	1092503	1355102	5875573	8%	2022
4700458	5547299	1175115	1401450	6948749	18%	2023
5558999	6201618	1389750	1412706	7614324	10%	2024
				Average	16%
				Stdev	25.3%
				14.0%	CAGR

In the above table, the first column shows nifty 50 allocation at the beginning of the year and the second column shows nifty 50 allocation after 1 year i.e., at the end of the year.

And the 3rd column shows the gold allocation at the beginning of the year and column 4 shows the gold allocation at the end of the year.

In addition, column 5 shows the fixed asset allocation portfolio value at the end of the year.

While column 6 shows the portfolio ROI for every year.

And the column 7 shows the year.

Moreover, the 1 lakh invested in this nifty 80% and gold 20% strategy became 76.1 lakh in 33 years time.

And the CAGR generated is 14%.

However, the standard deviation is 25.3%, which is less than nifty 100% investment and gold 100% investment.

So, it is very clear that the volatility came down because of asset allocation.

In addition, the CAGR is almost matching the nifty 100% investment.

Finally, the above chart image shows the nifty 50 and gold asset allocation (portfolio) ROI volatility.

In the above chart image, you can clearly see the volatility came down in the nifty 50 and gold asset allocation and rebalancing strategy compared to the nifty 100% and gold 100% investment strategies.

In addition, ROI is improved significantly when compared with gold 100% and ROI is not affected that much when compared with nifty 50 100% investment strategy.

However, portfolio volatility is higher than that of the gold 100% investment strategy and the portfolio volatility is lesser than that of the nifty 50 100% investment strategy.

So, it is very clear that diversification in asset allocation will bring down the volatility and the ROI may not increase that much.

In fact, the portfolio ROI may come down if the asset allocation is done.

However, you will get a risk-adjusted return for sure.

And if you still want higher ROI?, you may have to do some tactical asset allocation changes to your portfolio whenever opportunity comes apart from fixed allocation strategy.

What happened if you invested in fixed asset allocation strategy in nifty 50% and gold 50% in 1991? …

In this case the fixed asset allocation portfolio value became 61 lakh only, and the CAGR is 13.3%.

And the voltility significantly came down to 18.1%.

 

You can use the below Excel template to test different allocation percentages for nifty 50 and gold.

However, you can edit the cells that are highlighted in yellow only in the above template.

Conclusion…

We understood with nifty 50 80% and gold 20% we understood that the volatility of portfolio increased.

But the return also increased compared to gold.

Again, if you compare with nifty 50, the portfolio volatility got decreaed but the cagr not increased.

In case of nifty 50 50%, and gold 50%, the volatility came down significantly compared to nifty 50 and cagr also came down compared to nifty 50.

However, the cagr and volatility both increased compared to gold 100% investment strategy.

So, it is very clear, if you are looking to get more return, the more risk you should take.

And at the same, You should explore different investment strategies to reduce the risks.

Finally, you should remember for doing fixed asset allocation and  rebalancing of portfolio, You will incure expenses for exit and taxes.

But reducing the risk in the portfolio is very important.

And you should explore furthure how you can cater the exit expenses and taxes to come down.

Read about Asset allocation and its importance – All you need to know…

Also read about Nifty 50 investment – What is the best time to buy and sell?…

And read about Nifty 50 CAGR – How to calculate for next 10 years?…

Also read about gold investment – The best time to buy and sell?…