I am a young investor; I can bear more risk at this age, so 80% equity exposure is fine for me. This is the misconception among young investors.

In addition, you know to get an inflation-adjusted return on investment, investing in equity is must..

And at the same time, you also know that asset allocation based on your risk profile is also a must to reduce the risk in your portfolio.

But the big question is, how much equity exposure is needed?

Moreover, you may have heard or read somewhere that young earners can invest up to 80% in equity, as they do not need money until 20 years and above, which is very long.

And as the duration is long, more risk can be taken, which is the misconception among young investors.

Finally, in order to know if 80% equity gives more ROI than investing less than 80% of equity?, some analysis is needed.

And I have selected Nifty 50 and gold in the asset allocation and observed the rate of return with different allocations, including 80% equity exposure for these two assets, from 1991 to 2024.

Moreover, you can move in between the sheets of the Excel template which I have given in this article without downloading it also.

Backtesting of Nifty 50 (Equity) and gold with 50%:50% exposure…

For doing this analysis, I have taken the first Nifty 50 and gold years rate of returns from the years 1991 to 2024.

In addition, I have assumed that 1 lakh was invested in 1991 in a 50%:50% ratio in 1991 in both the Nifty 50 and gold.

And the portfolio is rebalanced once a year.

You can see in the above excel template that the 1 lakh became 61 lakh in 33 years time.

In addition, the CAGR is 13.3%.

And the standard deviation, i.e., the volatility, is 18.1%.

Backtesting Nifty 50 (equity) and gold with 60%:40% exposure…

For doing this analysis also, I have assumed that 1 lakh is invested in a 60%:40% ratio in 1991. and the portfolio is rebalanced once a year.

And this portfolio ran till 2024.

You can see in the above image that 1 lakh became 67 lakh.

And the CAGR is 13.6%.

Again, the standard deviation is 20.3%.

And you can see that the ROI and volatility increased with 60% Nifty 50 and gold investments, compared to 50%:50% exposure.

Backtesting Nifty 50 (equity) and gold investment with 70%:30% for young investors…

Here also, I have assumed that you have invested 1 lakh from 1991 till now. and in the ratio of 70%:30% in both Nifty 50 and gold, and the portfolio is rebalanced every year.

You can see in the above Excel template that the portfolio value became 72 lakh.

In addition, the CAGR is 13.9%.

And the volatility is 22.7%.

So, 70:30 in Nifty 50 and gold is giving more return than 60:40.

Backtesting Nifty 50 (equity) and gold in an 80:20 ratio for young investors…

Here, also, I have assumed that you invested 1 lakh in the Nifty 50 and gold in an 80:20 ratio and that rebalancing is done every year till the end of 2024.

You can see in the above Excel template that the corpus value in 2024 became 76 lakh.

In addition, the CAGR became 14%.

And the volatility became 25.3%.

So, 80:20 is giving returns better than the 70:30 ratio.

But the volatility increased significantly higher.

Backtesting Nifty 50 (equity) and gold in the ratio 90:10…

Here, also, I have assumed that you have invested 1 lakh in 1994 in a 90:10 nifty 50 and gold and rebalancing is done once a year till 2024 year-end.

You can see in the above Excel template that the portfolio value became 77 lakh.

In addition, the CAGR became 14.1%.

And the volatility became 28%.

Here, the corpus increased just 1 lakh from the 80:20 nifty and gold investment.

But the volatility increased very significantly to 28%.

Conclusion about 100% exposure to equity…

After looking at the different allocation percentages for both the Nifty 50 and gold, it is very clear that the ROI is not increasing that much after 70:30 exposure to the Nifty 50 and gold.

And at the same time, the volatility is shooting up in 80% equity and above.

So, 80% equity exposure is definitely not the right thing to do even though you are a young investor.

Finally, a maximum of 70% equity exposure is enough for a young investor.

And 80% and above equity exposure to Nifty 50 is not advisable, even for a young investor.

Read about the fixed allocation strategy – all you need to know…

Also read about the nifty 50 – what is the best time to buy and sell? …

And read about the Up and down capture ratios —-

Also read about gold investment – what is the right time to buy and sell? …

And read about the ICICI valuation index – how to use it to time the market?

Also read about why risk profiling is important before starting your investment.