Capitalmind Financial Services believes that despite silver's impressive gains in 2024, it doesn't warrant a significant allocation in investment portfolios. According to a recent study, a 50:50 Gold-Nifty portfolio would have outperformed both gold and Nifty for over 20 years. Thus, for maximum returns with minimal volatility, Capitalmind recommends an ideal portfolio allocation of 62 per cent to gold, 35 per cent to Nifty, and just 3 per cent to silver.
As of October 21, 2024, silver has surged over 30 per cent year-to-date, outpacing gold's 23 per cent and the Nifty index’s 15 per cent rally. However, Capitalmind's findings show that long-term performance alone does not validate increased silver exposure in a diversified portfolio. Historical data from 2000 to 2023 indicates silver achieved the highest annual return only five times over 24 years, while gold led in seven years, and the Nifty in twelve. The study points out that a 50:50 blend of gold and Nifty would have outperformed each gold and Nifty over a two-decade horizon, underscoring the benefits of diversification.
Capitalmind's study identifies an “ideal” allocation for maximum returns with minimum volatility: a portfolio of 62 per cent in gold, 35 per cent in Nifty, and just 3 per cent in silver. This configuration, the report noted, would have provided the best return-to-risk ratio from 2000 through 2024, delivering an annualized return of 13.33 per cent.
The report also explained how a portfolio predominantly weighted towards gold and Nifty would deliver strong results without extreme risk.
According to Capitalmind, a combination of 32 per cent gold and 68 per cent Nifty would have historically yielded the highest returns with moderate volatility, with an annualized return of 13.86 per cent, compared to 13.23 per cent for a Nifty-only portfolio.
Capitalmind’s Head of Research, Anoop Vijaykumar, commented on this balance, noting that “a portfolio primarily allocated to equities, supplemented by moderate gold exposure, can offer not only more stable risk-adjusted returns but also potentially higher absolute returns with reduced drawdowns compared to a Nifty-only strategy.” By contrast, silver’s high volatility and sporadic outperformance have historically limited its role to a minor allocation within a well-rounded portfolio.
Capitalmind's report further emphasised how uncorrelated assets like gold can serve as effective hedges during downturns. For instance, during the 2008 global financial crisis, the Nifty fell by over 50 per cent while gold prices rose by nearly 30 per cent. Such counter-movements can create a buffer during market turmoil, improving overall portfolio resilience.
It also examined over 5,000 potential allocation combinations across gold, Nifty and silver. This analysis demonstrated how optimal portfolios were able to outperform the Nifty’s annualized return of 13.2 per cent with lower risk, illustrating that strategic allocations can yield higher returns with reduced volatility.
The report’s analysis, plotted along the efficient frontier, highlighted various risk-reward ratios, mapping portfolios with ideal returns and low volatility across thousands of asset combinations. Lighter-shaded points, signifying smaller drawdowns, illustrate how optimised allocations with less exposure to silver still achieved favourable risk-adjusted returns. The highest-performing portfolios clustered around gold-heavy allocations, with minimal silver involvement, underscoring Capitalmind's recommendation for a modest silver allocation despite its 2024 rally.
While silver's stellar 2024 performance might look alluring, Capitalmind’s analysis shows that its sporadic outperformance and high volatility limit its effectiveness in a diversified portfolio. Instead, a portfolio emphasising gold and the Nifty can provide a balanced approach, with the potential for steady growth and lower risk exposure. For investors seeking optimised returns and reduced risk, gold and equities offer a reliable foundation, while silver serves best as a minor, complementary asset.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
