capital weight is not risk weight (2026-06-16 evening)

A friend showed me his portfolio last week, proud of how balanced it was. Sixty percent in stocks, forty in bonds, a proper cushion for the rough years. Then I asked him how much of his actual risk was sitting in those bonds. He guessed forty percent, same as the money. The honest answer is about five.

Here is the part the pie chart hides. Capital and risk are not the same split. Stocks swing around 18 percent a year, bonds maybe 5. So every rupee in stocks carries roughly three times the weight of a rupee in bonds. Run the decomposition on a 60/40 portfolio and the risk does not come out 60/40. It comes out 95/5. Ninety five percent of the swing is the equity sleeve. The bonds are along for the ride.

It gets worse before it gets better. Move to a 50/50 split and you are still at about 91 percent equity risk. To genuinely split the risk down the middle you would have to hold roughly 22 percent in stocks and 78 in bonds, and the whole portfolio would swing about 6 percent a year instead of 11. That is the allocation that is actually balanced, and in fifteen years I have met almost nobody who holds it.

None of this means 60/40 is wrong. It means the label is. A 60/40 is a growth portfolio with a small shock absorber, not a balanced one, and the day equities fall 30 percent your balanced fund will tell you exactly where its risk lived.

Three things I keep coming back to. Capital weight is not risk weight. Risk pools in the loudest sleeve. And balanced means balanced in risk, not in rupees.

The pie chart shows the money. The drawdown shows the truth. Read the contribution to risk before you call anything balanced.

How risk weight differs from capital weight: