Mint Money Compass: The only winning investment strategy: diversify, don’t chase.

There is an annual year-end tradition at Mint Money. Every year, we draw up an asset quilt to see how various asset classes performed. And every year, we walk into the new year with one strong conviction: Winners among asset classes keep rotating. What was a hero this year could be the underperformer next. This makes chasing the “next year’s winner” a futile exercise and highlights that diversified asset allocation remains the most reliable strategy.

We’ve seen this trend not just this year, but over the past decade. Take gold as an example. It was the standout performer in 2025 with its strongest ever 70% return in more than a decade. But looking back over the past 10 years, gold has outperformed other asset classes only twice more.

This year, gold has been an outlier, driven by global geopolitical uncertainty and central banks in emerging economies accumulating gold reserves to diversify away from the dollar. The rally has even persuaded sceptics of the yellow metal to view it as a hedge in their portfolios. And this is exactly the role gold plays: it shields your portfolio when uncertainties loom. And for this reason, experts recommend an allocation of up to 15%. For more on gold, see Jash Kriplani’s round-up on Gold.

Back to the asset quilt: US stocks (S&P 500) were the second-best performer in 2025, returning around 22.9% in rupee terms. The gains were driven by a resilient US economy, steady corporate earnings growth, and continued investor confidence in large technology and innovation-led companies that dominate the index. And this is also where the risk lies, as a very small set of technology stocks is driving the rally, leading experts to fear an AI bubble.

Of course, when markets become narrow, you go broad. In other words, even though a depreciating rupee boosted global returns for Indian investors, making global diversification important, it only merits a part of your portfolio. Experts recommend no more than 30% in global exposure.

Returns from the domestic Indian equities were mixed: large-cap stocks gained 10%, mid-caps rose modestly, and small caps lagged, reflecting the broader sentiment of global uncertainty, making large caps more reliable. Debt markets delivered modest returns in 2025. G-Secs, for example, slowed as demand weakened and long-term yields stayed elevated despite rate cuts signalling lingering concerns about future risks. Real estate didn’t excite the investors even this year.

Different asset classes perform differently and for different reasons, and those reasons keep changing, making it impossible to predict winners and losers. This asset quilt, painstakingly put together by Jash Kriplani, shows how assets rotate in performance across time and market environments. Since predicting these shifts is tough, the only reliable strategy is to diversify and keep your asset allocation aligned with your goals.

Also hear it from the experts! In this opinion piece, Kalpen Parekh, managing director and chief executive officer of DSP Mutual Fund, tells you why the biggest risk for investors is to chase winners with a Titanic-like overconfidence that can jeopardize their portfolio badly. “Mean reversion remains the market’s way of reminding us that no country or asset class stays at the top forever,” he says. A hero of one year rarely becomes a hero of the next decade. And so his mantra? Stay invested, stay diversified, stay cautious and stay humble.

Staying with investments Jash Kriplani in this story brings out the risk of investing in SME IPOs. These listings were created to help smaller companies raise money without meeting the stringent eligibility norms of the mainboard listing. SMEs often lack scale, track record or resources needed to comply with full-fledged regulatory norms, and this is also why picking these IPOs can be a risky bet for retail investors.

In 2025, a record 257 SMEs raised nearly ₹11,000 crore, yet out of 250 that got listed, more than half are now trading below their issue price. So while the excitement of quick listing gains has drawn many investors in, the weak post-listing performance shows the danger behind the frenzy. Jash’s advice is simple: retail investors need to avoid this space, especially when they are unsure about the company and its long-term growth.

In the insurance space, Khyati Dharamsi writes about wedding insurance and why it continues to be a neglected product among consumers. It’s not just a lack of awareness but also the long list of exclusions that make wedding insurance a confusing proposition. Further, for those buying wedding insurance, a lot of care needs to be exercised to understand the risks specific to their event and insure against it. Wedding insurance is a part of events insurance policy that covers cancellations, damages, and loss of valuables, etc., but this is also a product that is highly customisable. The story gives a rundown on what wedding insurance covers and where the fine print can hurt.

As we near the end of 2025, there are two interesting stories in the taxation space. More taxpayers are opting for the new tax regime with its lower rates and simpler rules. As a result, people are increasingly choosing investments based on their financial goals rather than tax savings. In this story, Maulik M spoke to taxpayers who say that Equity Linked Savings Schemes (ELSS)—once the star of Section 80C deduction—have lost appeal under the new regime, which doesn’t offer 80C deductions. Instead, they are choosing other equity mutual funds like index and flexi-cap funds to meet their goals. The Public Provident Fund continues to remain popular, thanks to its 7.1% tax-free return. But while this shift gives investors more flexibility, there is a growing concern that some may ignore their investment needs altogether now that tax saving is no longer a push factor.

This doesn’t remain the cause for concern alone. Shipra Singh spoke to chartered accountants whose clients faced tax scrutiny and steep penalties for unintentionally failing to disclose foreign assets. In one case, a Mumbai executive was fined ₹40 lakh for not reporting stock options—even though he never earned income from them—simply because he didn’t list them in the Foreign Assets (FA) Schedule of his tax return. In another, a senior couple came under scrutiny for a US bank account with a balance of just $20 to $50, opened when visiting kids abroad, but forgot to disclose on their return.

Reporting both ownership and income from foreign assets is a mandatory compliance requirement, and failing to do so, even unintentionally, can lead to a penalty of ₹10 lakh per year and imprisonment of up to seven years under the Black Money Act. This is where the law can feel harsh for honest taxpayers. While stronger oversight on foreign asset disclosure is welcome, many genuine taxpayers, who make reporting mistakes due to a lack of awareness, are also getting caught in the net.

And with this, we close the week. Do share your feedback with me, and what would you like to read about at deepti.bhaskaran@livemint.com.

Deepti Bhaskaran is editor, Mint Money, with close to two decades of experience as a personal finance journalist. Her work reflects a strong focus on financial literacy, consumer protection and practical money management.