Add Some Shine To Your Portfolio

Every portfolio should hold various asset classes which at best should be inversely related or have very low correlation. The concept behind the same is to offer stability to the portfolio. While the main asset classes are equity and equity-related instruments, debt and money market instruments and real estate, among others, gold gives the portfolio the much required stability during any downturn

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In India, it is a tradition for every family to possess at least some units of gold in the form of jewelry or investment. Love for gold jewelry is in fact ingrained in our culture. There are occasions when buying gold is considered auspicious in India. Gold is purchased in the form of coins, bullions, or jewelry. They are in physical form. However, now individuals willing to invest in gold can purchase gold funds, gold exchange-traded funds (ETFs), or sovereign gold bonds rather than investing in physical gold. Investment in gold offers the liquidity, inflation-beating returns and is considered one of the safest asset classes. Evidently, gold prices are rising year on year along with inflation. The following graph depicts the trend of gold prices since 1979.

As can be seen from the graph, there has been a surge in the price of gold over the decades. Thus, investment in gold is beneficial as the returns are in line with inflation. Moreover, investment in this yellow metal is considered to preserve and protect one’s wealth. Referring to the graph, if you had invested ₹1,000 in gold at the start of 1979, your wealth would have increased to ₹75,000 by now with an annualized return of 6 per cent. This is how investment in gold safeguards the capital of investors. Now, the question arises whether an investor should necessarily choose to invest in gold? Let’s look at the pros and cons in the following paragraphs.

Gold as an Asset