When it comes to investing, the time horizon is crucial for determining potential returns. For those examining a 15-year period, understanding which asset class has historically provided the highest returns can be enlightening.
Contrary to popular belief, Indian equities do not lead the pack for this specific time frame.
According to the FundsIndia Wealth Conversation Report, Indian equities, a favorite among many investors, have shown an annualized return of 13.2% over the past 15 years.
While this is impressive, the US markets, represented by the S&P 500, have outperformed Indian equities with an annualized return of 18.7% over the same period. Clearly, US equities have been the star performer, delivering the highest returns.
Other asset classes like gold, real estate, and debt funds also play significant roles in diversified portfolios but lag behind equities. Gold, often seen as a safe-haven asset, has yielded a moderate return of 10.6%.
Real estate, despite its reputation for long-term growth, provided a 6.4% return. Real estate returns are calculated based on the NHB Residex for the period from December 2002 to December 2008 for five cities and for 15 cities from December 2008 to March 2024. Lastly, debt funds, which are considered lower risk, offered a return of 7.5%.
Interestingly, if we extend the time horizon to 20 years, the performance dynamics shift considerably. Indian equities emerge as the best performer with a robust 16.1% annualized return. US equities follow with a 13.9% return, reflecting strong long-term growth. Gold’s performance over two decades is also noteworthy at 12.8%, overshadowing the returns from real estate (8.4%) and debt funds (7.4%).
While the 15-year horizon puts US equities at the forefront, the 20-year analysis is a testament to the long-term potential of Indian equities. This variance highlights the importance of considering the investment horizon and economic cycles in financial planning. Investors should assess their risk tolerance and long-term goals to make informed decisions tailored to their financial aspirations.
Ultimately, the comparison between a 15-year and a 20-year horizon underscores the dynamic nature of financial markets. Indian equities may take the lead over extended periods, but shorter-term opportunities in other asset classes, like US equities, should not be overlooked. One can invest in international stocks either directly or through mutual funds. Investing directly can be costly as it includes the cost of currency conversion at both the time of buying and selling. Investing through mutual funds is a simpler and easier route. Investors must continuously evaluate their portfolios, considering both historical performance and future potential, to achieve their financial goals.