Planning your portfolio for 2026? Here’s how to think about gold, equity and debt allocation

2025 was an unusual year for the financial markets. Traditionally, safe assets have outperformed their riskier counterparts, reversing the typical investment narrative. Gold, often seen as a safe haven, led the pack with returns of almost 50% as stock markets remained volatile after a three-year bull run.The stocks peaked in September 2024, then fell sharply in early 2025, recovered for a few months, corrected again during the Indo-Pak skirmish and posted modest gains over the past six months. On an annual basis, the Sensex has returned only 7%.

Against this backdrop, investors face an important decision on how to adjust their asset allocation in the near term.

I have always believed that the most important decision on your wealth journey is asset allocation. Short-term adjustments can provide a sense of elation if they perform well, but the long-term allocation determines sustainable wealth creation. An underweight stock portfolio may feel comfortable after one year of returns, but will likely underperform over the long term. Take some time to review your allocation across equities, real estate, fixed income and gold. Are you taking the right level of risk? Is your money working hard enough for you?

Since this article focuses on short-term trends, that’s where we’ll go. Someone once said, “In the short term, markets act like a voting machine; in the long term, they act like a weighing machine.” A year ago, the Nifty PE was swinging forward around 22x; today it is about 20x. Earnings growth over the past five quarters has been slow, but this trend could reverse. With robust economic activity and positive business expectations, earnings growth should rebound strongly over the next two years. Combined with continued strong inflows into equities, this suggests that a higher allocation to equities in your portfolio is justified.

Gold, on the other hand, has seen one of its strongest rallies in history. Central bank buying, trade conflicts with the US and diversification of foreign exchange reserves have boosted demand. For example, the RBI’s gold reserves have risen from 7% to almost 15% of its reserves of $700 billion in two years. But gold is volatile, unlike government bonds. Central banks may pause or slow purchases, and speculative demand is often driven by recent price developments. Consequently, gold can only provide moderate returns in the future, and a significant correction in the coming years is possible. It should therefore make up a smaller part of your portfolio. Fixed income returns are subdued after a 1% interest rate cut by the RBI, with expectations of further cuts. Safe instruments such as FDs, PPFs and high quality bonds remain important for wealth preservation and portfolio balance, depending on your risk tolerance. Avoid high-yield products marketed online as safety should be the primary goal in fixed income.Conclusion: To benefit from short-term trends, consider increasing your allocation to equities through mutual funds or PMS, reducing your allocation to gold and continuing to hold a healthy portion in safe fixed income instruments.

(Raghvendra Nath is Managing Director of Ladderup Asset Managers)