The HNI Portfolio Problem: Is 60:40 Too Simple For Larger Wealth?

For decades, the 60:40 portfolio – 60 per cent equity and 40 per cent debt - has been one of the simplest ways to explain asset allocation. Equity provides growth, while debt provides stability and liquidity. It is easy to understand, easy to implement and, for many investors, still works well.

But does the same approach make sense when someone has Rs 1 crore, Rs 3 crore, Rs 10 crore or more of investable wealth?

Not necessarily.

As wealth grows, the problem changes. The investor is no longer just deciding how much money to put into equity and how much into debt. There may be a family business, promoter shares, ESOPs, real estate, unlisted investments, fixed deposits and, increasingly, assets outside India.

Look at a hypothetical investor with Rs 5 crore in financial investments, Rs 10 crore in a family business and another Rs 5 crore in real estate. The financial portfolio may be 60:40, but is the family’s wealth really diversified?

Not quite. A large part of the family’s net worth is still exposed to equity, the business cycle, real estate and the Indian economy.

That is why HNI asset allocation needs to start with the balance sheet, not just the investment portfolio.

Tax is another area where the standard approach can fall short.

A fixed-income investment yielding 7 per cent does not mean the investor is earning 7 per cent. At a high marginal tax rate, the post-tax return can be considerably lower. Add inflation, and the real increase in purchasing power can become surprisingly small.

“This doesn’t make debt or fixed deposits bad investments. They serve an important purpose. But the question is whether all the money set aside for stability needs to be in the same form, particularly when tax efficiency, liquidity and duration can be managed differently,” says Anand K Rathi, Co-Founder of MIRA Money.

Liquidity is another issue that tends to get overlooked.

An HNI may have access to private equity, unlisted investments, real estate and other alternative assets. These can make sense when the investment horizon is five or ten years. But they may not be much help if the family needs the money next year.

The first question, therefore, should be simple: how much money will the family need over the next one to three years? What can stay invested for five or ten years, and how much can comfortably be locked in for longer?

“An investment may look attractive on its own, but that does not necessarily make it the right investment for the portfolio. If the money cannot be accessed when it is needed, even a good investment can create a problem,” says Rathi.

Then there is the question of the rupee.

For most Indian investors, income, business, property and financial assets are already heavily linked to India. That is understandable, but it also creates concentration in one country and one currency.

Global investments don’t necessarily have to be a bet on which market will outperform India. They can simply provide exposure to different economies, companies, currencies and market cycles.

Gold can play a similar role. It doesn’t need to outperform equity every year to justify its place in a portfolio. Its value can come from behaving differently when other parts of the portfolio are under pressure.

So perhaps the question for an HNI isn’t whether the portfolio should be 60:40, 70:30 or something else.

It is a more basic question: what does each part of the wealth need to do?

“The answer will be different for every investor. Some capital may need to compound over the long term. Some may need to preserve what has already been created. Some may be required to generate income, while some may need to remain liquid for an opportunity that has not come up yet. And for many families, part of their wealth is being built with a horizon that extends well beyond their own lifetime,” observes Rathi.

Once those objectives are clear, asset allocation starts to look different. Equity can drive long-term growth. Debt can provide stability and liquidity. Gold and alternatives can diversify risk. Global assets can reduce dependence on one country and currency.

The important thing is that the asset should have a reason for being there.

The argument is not that 60:40 is wrong. For many investors, it remains a perfectly reasonable starting point.

But at higher levels of wealth, you are managing something bigger than a portfolio. You are managing a balance sheet, with different parts of your wealth exposed to different risks and serving different needs.

“Good portfolio construction, therefore, is less about finding the perfect percentage and more about putting together the right combination of assets for the risks and requirements that the investor actually has,” informs Rathi.

For an HNI, the starting point is not just deciding how much money should be in equities.

A better question is: what do I want my wealth to achieve?

It could be about funding a child’s education, creating a steady income, preserving wealth for the next generation or simply having enough money readily available when needed. Once those priorities are clear, deciding where to invest becomes much easier.

That is where a meaningful conversation about an HNI portfolio should begin.