When asked, “Which asset class is the best to invest in?” the answer isn’t straightforward. It’s both “all of them” and “none of them,” depending on how you approach the question. Each asset class—debt, real estate, equity, and precious metals—serves a unique purpose and has different metrics for measuring performance. Successful wealth management involves understanding these purposes and ensuring that each asset class is proportionally represented in your portfolio to align with your financial goals.

The Role of Asset Classes

Debt : This asset class prioritizes capital safety and provides inflation protection with a touch of liquidity premium. It’s a defensive tool, ensuring stability in a portfolio.

Real Estate : Real estate brings cash flow opportunities, although it’s typically less liquid. It adds a layer of long-term investment that can provide steady returns but tends to dominate many portfolios—especially in countries like India.

Equity :Equity is the only asset class that is designed to outpace inflation, compounding wealth by generating alpha relative to other investments. While it carries more risk, equity is essential for building long-term growth.

Precious metals : Precious metals primarily function as a store of value with the highest grade of liquidity attached to any asset class.

Case in point : The Client's Lopsided Allocation

A UHNI (Ultra-High-Net-Worth Individual) approached us with a significantly imbalanced portfolio. As seen in Scenario A, nearly 70% of their wealth was tied up in real estate, leaving only 10% each in equity, debt, and precious metals.

Scenario A

Asset Class                      Value (Lacs).          % of Wealth

Debt.                                  100                          10

Real Estate                       700                          70

Equity                                 100                          10

Precious Metals               100                          10

Total Net-worth.              1000                        100

For many wealthy families in India, this scenario is typical. Real estate, considered a “safe” investment, often takes up the bulk of the portfolio. But this over-reliance on one asset class leads to missed opportunities for growth and diversification. Our goal was not just to manage their equity allocation, but to strategically rebalance the portfolio for long-term success.

A Tailored Rebalancing Strategy

The first step in rebalancing was to halt any new investments in real estate. This allowed the client to redirect fresh cash flows into equity and debt, aiming for an 80:20 split (Equity:Debt). The objective was to reduce the portfolio’s allocation risk, enhance overall returns, and create a better balance that matched the client’s ability to hold and grow wealth.

In Scenario B, after a 2-year plan to allocate new funds more effectively, the client’s portfolio was transformed.

Scenario B (A + 2 years)

Asset Class                      Value (Lacs).          % of Wealth

Debt.                                  180                          18

Real Estate                       750                          75

Equity                                 450                          45

Precious Metals               120                          12

Total Net-worth.              1500                        150

By growing the equity and debt portions, the client’s overall portfolio was positioned for better CAGR (22.47%) and long-term wealth creation.

The Risks of Stagnation

Now, imagine a scenario where no action was taken, as seen in **Scenario B (Unadvised)**. Real estate would continue to dominate, increasing the risk of stagnation and limiting the portfolio’s growth potential. (22.47% vis-a-vis 9.54% CAGR)

Scenario B Unadvised (A + 2 Years)

Asset Class                      Value (Lacs).          % of Wealth

Debt.                                  120                          12

Real Estate                       750                          75

Equity                                 120                          12

Precious Metals               210                          21

Total Net-worth.              1200                        120