# the cash dial, not the stock list

_Systematic Investing . 2026-06-27 . By Tanmay Kurtkoti. Educational, illustrative, not advice._

A friend asked me last week which stocks the "conservative" version of his portfolio should hold. Safer names, he assumed. Lower beta. Fewer late nights.

I told him he was reaching for the wrong knob, and he did not believe me until I drew it out.

Start with one idea. Somewhere out there is a single mix of stocks that gives the most return for each unit of risk you take. The highest Sharpe portfolio. Now do something simple with it. Hold 40 pct of it and keep 60 pct in cash. Then try 65 pct. Then 90. The expected return climbs, the volatility climbs with it, and the one thing that never budges is the reward per unit of risk. In my illustrative numbers it sits at 0.36 the entire way along.

That is the whole trick. Your risk appetite does not pick the stocks. It picks how much of the same portfolio you can stomach holding. The cautious investor and the aggressive one should own the identical names. One just keeps more cash beside them.

Here is what it costs to ignore that. Take the cautious investor and let her do what feels natural, swap the racy names out for a hand-picked defensive basket at the same 7.2 pct volatility. She earns 8.3 percent instead of 9.1. That 0.8 point gap does not sound like much. On Rs 10 lakh over twenty years it is roughly Rs 7.8 lakh, handed away for the comfort of owning different stocks instead of less of the right ones.

So there were never three portfolios for three risk levels. There was one portfolio and three settings on a cash dial. Honest caveat, the textbook version assumes a perfect risk free asset that does not quite exist, so real life nudges the edges. The lesson survives it.

Find the amount you can actually hold through a bad year first. Then dial the cash to match. The stocks were never the variable