60:40 vs 50:50 mix: Is higher equity in portfolio worth the risk?

Asset allocation remains crucial for long-term returns, with investors largely sticking to 60:40 equity-debt ratio to balance growth and risk. But a look at 15 years of data reveals that a 50:50 portfolio yields almost the same returns. So, is the 60:40 risk worth it?

Long-term returns can vary widely depending on how equity performed in a particular year, said Ashish Anand, partner, Fortuna Asset Managers.

"The moot point is that the 60:40 portfolio outperformed the 50:50 in 10 out of 15 years, and crucially, outperformed by a wider margin in strong equity years, while the underperformance in weak equity years remained modest and manageable," he said

The real advantage of higher equity exposure becomes clearer when one looks at how portfolios perform across market cycles.

The maths favours equity

Over a 15-year period, the difference between a 60:40 and a 50:50 portfolio is not the 10 percent additional equity; it is the compounding effect of that 10 percent.

For instance, if largecaps delivered around 12 to 13 percent return every year over 15 years, and debt instruments such as corporate bonds and gilt funds delivered around 7 to 7.5 percent, then that additional 10 percent shift to equity compounds a lot over time.

From April 2011 to March 2026, the 60:40 portfolio generated a CAGR of about 10.5 percent, compared to 10.2 percent for the 50:50 mix, reflecting the return premium from equities.

In strong market years such as FY15, FY18, FY21, and FY24, the 60:40 portfolio consistently outperformed due to higher exposure to the Nifty50.

"We compared the returns that one can earn by investing Rs 10 lakh over a 15-year horizon. And the results make it clear that a 60:40 equity-debt mix adds more growth exposure without pushing the portfolio into an all-equity risk zone. Based on the table, the 60:40 scenario ends at about 41.86 lakh versus 40.41 lakh for the 50:50 portfolio. That difference of about 1.45 lakh, while also showing an average higher return of 11 percent vs 10 percent is the reason that the 60:40 equity-debt allocation is preferred," said Nehal Mota, co-founder and CEO, Finnovate.

But it's not just about returns

The argument for a 60:40 portfolio over the 50:50 portfolio one is about how it handles risk. "A 50:50 portfolio might seem like the choice but it can be what I call 'false comfort'. You are not really be 100 percent safe because you still have 50 percent of your money in the stock market," Anand said, leaving you exposed to market volatility.

A 60:40 portfolio is a disciplined approach that balances long-term growth with protection, without trying to time the market.

"The 40 percent allocation to bonds acts as that buffer. When diversified across different types of bonds, including those linked to short-term interest rates, it can provide stability and income, especially during periods of market stress," added Anand.

In 2020 and 2008, when the market had drops, having 40 percent in bonds gave people more time to make decisions and helped them feel more stable.

"The 60:40 portfolio gives you time. It helps you stay calm. The 40 percent in debt does work during bad times. A 60:40 portfolio is a bet on the market, and it can help you during the tough times," explained Mota.

Things to remember

Equity drives long-term returns, while debt helps reduce volatility and absorb short-term shocks.

The 60:40 strategy works only if investors review and rebalance their portfolio at least once a year, Anand said. Without this, a rising market can push equity exposure higher than intended, increasing risk. "Many investors overlook this step, which leads to mistakes,” he said.

Mota said, "A 60:40 portfolio mix suits investors who can take a slightly higher risk and have a long horizon. Those closer to retirement, or with lower risk appetite, may prefer a 50:50 or more conservative allocation."