Gold has traditionally been viewed as a safe-haven asset during periods of market uncertainty. While investors often use it as a hedge against inflation and geopolitical risks, a recent study suggests that gold can also play an important role in improving the risk-return profile of an investment portfolio when combined with equity and debt.
According to WhiteOak Capital's June 2026 edition of "Chemistry of Investing", adding gold to a portfolio alongside equity and debt has historically helped lower volatility while enhancing returns, highlighting the benefits of a diversified multi-asset allocation strategy.
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The study challenges the common belief that adding equity to a debt portfolio automatically increases risk. Based on historical data from September 2001 to May 2026, a portfolio invested entirely in debt delivered an average annual return of 6.81% with a volatility of 6.38%.
Interestingly, adding a small equity allocation improved outcomes. A portfolio comprising 90% debt and 10% equity generated an average return of 8.02% while reducing volatility to 5.75%.
Similarly, a portfolio with 75% debt and 25% equity delivered an average annual return of 9.83%, significantly higher than the all-debt portfolio, while maintaining a similar level of volatility.
According to WhiteOak Capital, this demonstrates how a carefully balanced mix of asset classes can improve risk-adjusted returns rather than simply increasing risk.
The study found that portfolio outcomes improved further when gold was introduced as a third asset class. WhiteOak examined a portfolio consisting of 55% debt, 25% equity and 20% gold. The combination generated an average annual return of 11.61% with a volatility of 6.85%.
