The late market veteran Rakesh Jhunjhunwala often reminded investors that wealth creation does not begin with stock selection, but with asset allocation. An old video of Jhunjhunwala that is making rounds on the social media platform X shows the well-tracked market investor suggesting that, in investing, the most critical decision is asset allocation.

So the first task of an investor is asset allocation, Jhunjhunwala said. Equity, debt, gold, real estate, or even alternative assets such as art would depend on the investor.

According to him, nearly 60% of an investor’s long-term returns come from getting asset allocation right, while only 40% depend on selecting the right individual assets.

To illustrate the power of allocation, Jhunjhunwala said that if in 1978, he had invested in gold and two years later, exited that and bought Japan’s Nikkei, and then again in 1989, shifted from Nikkei to the Nasdaq, the compounded return would have been around 26% annually.

At 26% compound growth, money doubles roughly every 33 months, she said. “So over a period of 30 years, your money will be some 40, 50, 60 times. So, this is how important the task of asset allocation is,” Rakesh Jhunjhunwala said.

Consistency is key

But the story doesn’t end with getting the allocation right. The second pillar of successful investing, according to Jhunjhunwala, is consistency.

Citing his own Marwadi business background, Jhunjhunwala spoke about the cultural emphasis on steady returns and preservation of capital. “There is a huge difference between earning 10% and 15% over 20 years,” he noted. Even a seemingly small increase in annual returns can lead to dramatically different outcomes due to compounding.

He even likened his philosophy to Warren Buffett’s approach: focus on growing the principal steadily. “Marwadi ka compounding or Warren Buffett’s compounding same? Ki principal badao. Har saal principal khonega nahi. Aur bhale kam mile. But surely,” Jhunjhunwala is seen saying, suggesting grow the base, don’t let it erode, even if returns seem modest in the short run.

Jhunjhunwala’s emphasis on asset allocation and consistency continues to offer a timeless framework for long-term investors.

Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions.