Since the Iran conflict broke out, established conventions in investing have flown out of the window. Asset allocation has been one casualty.Divide your portfolio between different uncorrelated assets, experts always said, and you will enjoy a smoother journey with better returns. But Indian investors who maintained asset-allocated portfolios have suffered higher value erosion than folks who didn’t, since early this year.From February 28 (when the Iran war broke out) till date, stock markets have declined about 5 per cent (at the Nifty50 level) on fears that rising energy prices will dent company earnings. Bonds usually move in the opposite direction to stocks. But on this occasion, bond prices too fell, on fears that spiking commodity prices will revive inflation and interest rate hikes.Gold, which usually rockets during crises, let down investors too. Since February-end, gold has fallen 11 per cent in rupee terms. The prospect of rate hikes in the US has made global investors prefer US treasuries over gold, as a safe-haven choice.If all asset classes are going to tumble in tandem when a crisis breaks out, what’s the point in my maintaining an asset-allocated portfolio? You may also be wondering if asset allocation works in the real world.This is why we ran the numbers on how an asset allocated portfolio would have fared in the last 11 years, using actual returns on different assets. We found that an asset allocated portfolio with 60 per cent equity, 30 per cent debt and 10 per cent gold, delivered almost the same returns as an equity-only portfolio, with a much smoother journey.MethodologyWe assumed that an investor started out with ₹1 lakh to invest in end-2014. He invested ₹60,000 in a Nifty50 index fund, ₹30,000 in a short-term debt fund (we took the category average as proxy) and ₹10,000 in a gold exchange traded fund (category average). We then traced the growth of this portfolio based on actual returns delivered by each of these assets in every calendar year.At the end of each calendar year, we took stock of the portfolio’s asset allocation after accounting for gains. If any asset overshot its preferred allocation by 5 percentage points or more, we booked profits on it and moved the excess to the other two assets. The asset with the higher shortfall compared to the preferred allocation was refilled first.This exercise did not lead to much portfolio churn. In the 11-year period, there were only two years where the portfolio needed rebalancing. By the end of 2021, the equity portion climbed to 65.6 per cent and had to be rebalanced back to 60 per cent. The profits booked on equity were re-invested in debt, which had fallen to a 25 per cent allocation. In 2025, the gold allocation shot up to 15 per cent of the portfolio, requiring profit booking on gold and reinvesting that sum back into debt and equity. The behaviour of this rebalanced portfolio is captured in the accompanying table.Take-awaysWe compared how the asset-allocated portfolio fared over the 11 years, against a full-equity portfolio invested only in the Nifty50. These were the findings:* Both the equity-only portfolio and asset-allocated portfolio delivered positive returns in nine of the 11 years.* Both had two negative years – 2015 and 2026. However, the asset-allocated portfolio suffered much lower losses than the equity-only portfolio. This is good because behaviourally, an investor suffering a 3 per cent loss will face less stress and temptation to pull out during a market fall, than one faced with an 8 per cent loss of net worth.* The best years for the equity-only portfolio saw big gains of 28.6 per cent and 24.1 per cent in 2017 and 2021. The best years for the asset-allocated portfolio saw more moderate returns of 18.1 per cent and 18.4 per cent in 2017 and 2024.* The performance of equity, debt and gold each year, demonstrates the benefit of diversifying across assets. In 2016, when equities delivered a mere 3 per cent, debt and gold lifted up portfolio returns with a 9.8 and 11.8 per cent gain respectively. In 2017, when debt and gold delivered poor returns at 6.1 per cent and 2.3 per cent respectively, equity saved the day with 28.6 per cent. In several years where equity delivered single-digit gains or losses (2016, 2022, 2026), gold managed gains and debt anchored the portfolio with stable returns.* One of the main pluses of maintaining a fixed asset allocation is that it forces rule-based profit booking on outperforming assets. In our asset-allocated portfolio, an investor would have been forced to book profits on equity at the end of 2021, after three years of double-digit gains. He would have also been nudged to book profits on gold at the end of 2025, after a bumper 75.8 per cent gain. It is doubtful if any investors, left to themselves would have booked profits at those times, when maximum greed was at play.Overall, the 60-30-10 portfolio delivered an almost identical return to the fully equity portfolio over this 11-year period, at a respectable 10 per cent. The asset-allocated portfolio, however, subjected investors to a less bumpy journey. It also managed to deliver a better overall return than the equity-only portfolio in six out of the 11 years. That’s surely a solid testimony for asset allocation.The author is a Contributing EditorPublished on July 11, 2026