Based on the historical returns analysis, it is established that returns from different assets vary vastly even during a comparable time horizon. While we are aware that “past performance is no guarantee of future results”, but again historical returns do hold some relevance in driving investment decisions.
Further, it is known that returns from assets matter the most to an investor based on his/her risk appetite and the time horizon, therefore it is imperative to at least have some idea on how various assets actually performed over different time horizons.
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| Image Courtsey: By Realterm |
In this piece, we try to recapitulate returns delivered by some of the key assets over a timeframe of one year, three years, five years and ten years to understand how they fared against the general expectations.
Asset Type
|
1-Yr
|
3-Yrs
|
5 -Yrs
|
10-Yrs
|
Nifty 50 Index
|
20.69
|
11.03
|
12.10
|
9.21
|
Equity
|
22.72
|
14.44
|
13.95
|
10.48
|
Debt (Consrvative)
|
12.69
|
11.61
|
10.07
|
9.25
|
Gold Fund
|
-0.66
|
-0.86
|
-0.82
|
10.85
|
*Source- www.valueresearchonline.com
What Those Numbers Say?
A quick look at the returns of various assets helps to derive some key takeaways from history.
- Equity outperformed other asset classes over one year. However, the risk involved in such short-term bets should not be ignored at any point in time.
- Both equity and debt managed to deliver returns that are generally expected out of them.
- Debt lagged equities by a small margin over three and five year periods. The returns from this asset class seem appealing considering the fact that debt funds invests in less risky instruments and are relatively safer than equities. With risks factored in, equity remained a clear winner over others during the two time horizons.
- Gold won over all the other three asset classes in long-term. However, its rally against equity was only marginal. The asset class delivered negative returns through one, three and five-year periods, which should help investors overweight in this asset class to reassess its ‘safe-haven’ status.
Final Word
Yet again, we would like to reiterate that returns from various assets are unpredictable, just like the way gold returns eclipsed those of the equity in the above compiled table. The opposite of this outcome is equally possible ten years down the line.
In a nutshell, the table above serves as a strong basis to believe in ‘Diversification’, which has been underlined as an important element of financial planning time and again. Besides this, there is no one diversification strategy that suits all. So it's always better to seek appropriate advice when in doubt.
About The Author: Reenika Avasthi is associated with Inverika Investment Solutions LLP as a Content Writer and Financial Planner. She is a Certified Financial Planner and a freelance content writer in the field of personal finance. Her interest in writing and spreading investor awareness motivated her to start blogging.
Visit www.facebook.com/Inverika to learn more.
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