How much should you allocate to Equity ?

Global Household Asset Allocation

When we look at how households around the world allocate their assets, it becomes clear that there is a significant variation in investment strategies across different countries. This variation can be seen in a chart that compares household total assets in several countries, including Canada, Japan, the UK, Australia, Taiwan, and the US. The chart reveals how much of household assets in each country is allocated to different asset classes, such as real estate, cash, deposits, equities, mutual funds, and other securities.

Real Estate: A Major Asset Class

Real estate emerges as a dominant asset class in most countries. For example, in Canada, 62% of household assets are invested in real estate, making it the highest among the countries surveyed. In the UK, 51% of household assets are in property, while in Australia, the figure is 56%. Even in Japan and Taiwan, where real estate does not dominate as much, it still accounts for a significant portion of household assets, with 36% and 28%, respectively. This highlights the importance of property as a secure and valuable asset class for households globally.

Cash and Deposits: A Safe Haven

Cash and deposits also play a significant role in household asset allocation, especially in countries like Japan and Taiwan. In Japan, 35% of household assets are held in cash and deposits, while in Taiwan, the figure is also 28%. This suggests that many households prefer to keep a substantial portion of their assets in liquid and safe forms, perhaps due to a preference for security over potential higher returns from riskier investments like equities.

Equity and Mutual Fund Investments

Investments in equities and mutual funds vary widely across the countries surveyed. In the US, equities and mutual funds account for 36% of household assets, which is the highest among the countries in the chart. This reflects a strong culture of equity investment in the US. However, in other countries, the allocation to equities and mutual funds is much lower. For instance, in Canada, only 11% of household assets are in equities and mutual funds, while in the UK and Australia, the figure is just 8%.

Comparing Global Averages with India

When we compare these global averages to India, it raises interesting questions about how Indian households should allocate their assets. While there is often a push in India to heavily invest in equities, this global data suggests a more balanced approach might be wiser. Real estate, cash, and deposits play a crucial role in household assets worldwide, and Indian investors might benefit from considering similar diversification strategies.

The data shows that having a well-balanced asset allocation is crucial for financial stability. While equities can offer higher returns, they also come with higher risks. On the other hand, real estate and cash provide stability and security. As Indian households accumulate more assets, it is essential to normalize asset allocation to avoid overexposure to any single asset class. A diversified portfolio that includes real estate, cash, and equities can help protect against market fluctuations and ensure long-term financial security.

Check out the detailed video on the WeekendInvesting App