Despite a robust 30% year-to-date return, silver may not deserve a substantial spot in your investment portfolio, according to a recent report by Anoop Vijaykumar and Divyansh Agnani from Capitalmind Financial Services.
The report explores the benefits of adding uncorrelated assets like gold and silver to a portfolio, highlighting that silver’s contribution to lowering portfolio volatility remains limited.
Silver’s performance vs optimal asset allocation
As of October 21, 2024, silver’s returns (over 30%) have surpassed gold’s 23% and Nifty’s 15%.
However, this high performance doesn’t necessarily translate to a long-term advantage.
Between 2000 and 2023, silver outperformed only five times, whereas Nifty and gold led the annual returns in 12 and seven years, respectively.
The report suggests that the ideal way to balance returns and volatility would be with a 62% gold, 35% Nifty, and a minimal 3% silver mix.
This combination historically provides high returns with lower volatility, outperforming a Nifty-only portfolio.
Why less silver, more gold?
Capitalmind’s research found that adding gold to Nifty reduces volatility and enhances stability, especially in times of market turmoil.
For example, in 2008, during the global financial crisis, gold’s value rose nearly 30% while Nifty tumbled over 50%.
Silver, though a solid hedge, hasn’t shown similar resilience or stability in such periods.
As Capitalmind’s Head of Research, Anoop Vijaykumar, explains, “A portfolio primarily allocated to equities, supplemented by moderate gold exposure, can offer more stable risk-adjusted returns with reduced drawdowns compared to a Nifty-only strategy. Silver only merits a small allocation for low-volatility portfolios.”
Uncorrelated assets and the power of asset allocation
While Nifty has historically offered the highest annualised returns, adding uncorrelated assets like gold—and, to a lesser extent, silver—can increase long-term portfolio value.
The report reveals that a 50:50 allocation of Nifty and gold would have outperformed both assets individually over the past two decades.
Furthermore, the highest returns with minimised volatility could be achieved with a portfolio holding 32% gold and 68% Nifty, yielding a return of 13.86%, slightly higher than Nifty’s 13.23%.
Exploring optimal allocations and the efficient frontier
To analyse the potential of each asset mix, Capitalmind reviewed over 5,000 allocation combinations between Nifty, gold, and silver.
According to their findings, the best results—both in terms of returns and volatility—came from portfolios with limited silver exposure, reflecting that silver’s role is minimal in a balanced, risk-adjusted approach.