Given the rate of return of gold in the last few years, do you think the gold allocation in your portfolio needs to increase ?
Does your financial planning philosophy say that the maximum gold which should be present in your diversified portfolio should be 5% to 10% and the rest should be other asset classes.
Well, probably you should be changing that now…
The case for gold…
India has been suffering from high inflation for a long time now. Gold is one of the investment classes which is pretty much immune to inflation and economic catastrophes like those of 2008. It is considered as the best hedge against inflation.
In a recent study revealed by the World Gold Council, it has been revealed that increasing gold holdings in your portfolio is the right thing to do in today’s scenario. This is in-line with the current suggestion of many financial planners in India about ramping up asset allocation in gold given its past history in the last few years.
Gold is also known to reduce the volatility in one’s portfolio. The stock markets have been very volatile all through this year. You could potentially throw in other asset classes like debt to reduce the volatility. But why not increase your asset allocation in gold when it has historically proven its place as a asset class of its own and beaten most of the others ?
Obviously that does not mean that you neglect debt, but remember that gold allocation now needs to get a serious uplift in your portfolio.
Gold will always see a consistent demand from emerging countries and rising incomes will potentially drive the ask.
The fact that since the 2008 debacle in the US, gold has performed well than most asset classes and the fact that pundits still continue to predict a rise in gold prices should make you look up and notice.
In fact, gold is the only asset class that has more than doubled in the last 3 years or so. The other asset classes have come a tad behind gold in their performance.
The below chart explains the rise in gold over the last 10 years. What is noticeable is that it is a consistent rise in the price of gold.
How much gold allocation in your portfolio ?
Most of the recommendation around investing in gold is to keep a maximum of 5% – 10% of exposure in your overall portfolio. This is a standard recommendation which investors get to read in newspapers and hear in TV channels. This recommendation has stayed consistent in the last many years. However, it could possibly be the right time now to change that and ramp up your investments in gold.
You could potentially increase your interest in gold to as high as 20% – 30% in your portfolio but remember that you will need to do a asset allocation each year. Don’t go overboard and over inundate your portfolio with gold.
The best way to invest in gold…
In India, gold ETFs (Exchange Traded Funds) have been launched in large number in the last few years. This is the best method of investing in gold without getting hold of it physically. You can put in small amounts of money and buy in on the BSE and NSE.
Gold ETFs have given a minimum of 20% absolute returns in 2008, 2009 and 2010. Investors should take this opportunity to increase gold in their portfolio.
Do you think you agree to ramping up gold holdings in your portfolio ?
I would agree to this. Gold has always kept a small percentage of our portfolio.
Given the returns, I think we can increase gold in our savings.
I am not sure wehther 30% is the right figure, looks more to me.
Very good video from World Gold Council…
@Dhruv, The vidow is indeed good
Very good article.
I personally think that we shoudl keep gold at 10% only maximum.
Just becasue it has given good returns in the last 3 years shoudl not make us go and invest in it.
I woudl keep the lid on 10%.
I also agree that ETFs are the best way to invest in gold.
@Samrat, Well I do agree to that. Simple dont investbecause it gave good returns but see the other reasons to go with it.
ETFs are the best way to invest.
Good Article.
Yup, Gold allocation needs to be increased in the portfolio. Best way is to set-up and SIP (amount – not quantity) in ETFs, or even you can probably buy for certain amount once in a month when you feel it’s somewhat (100s) down.
Though, I did read some articles which says Gold is very high right now and it’s not good to invest at this point (reverse to buy low sell high).
For me, your money is safer if invested in Gold systematically and would surely give return (as it’s mostly not going to fall all the way like stock, having it’s own importance).
@Chirag, Agreed Chirag, that is the best way to invest in gold.
The above article is really wonderful and useful for new investers like me. I would like to invest Rs. 2500 monthly in gold apart from my Rs. 1000 monthly SIP investment in various diversified funds. Please suggest me which is the best gold etf for investment through SIP currently?
@Shabbir, Actually you can pick up any, all of them are good.
@Radhey, 20-30% allocation of gold in a portfolio? hmmmmm .. interesting!
Do you still recommend this Radhey?
@Radhey,
At this time i have investments in physical gold only. In future if i invest in gold eft’s my investment would not exceed 10%. I see investment in gold similar to that in debt funds.
Hi Rakesh,
Gold ETF is just one of the multiple ways to invest into Gold. Have a read of this article http://insight.banyanfa.com/?p=540 which describes all the possible currently available for retail investors to invest into Gold.
Regards
BFA
Hi Radhey,
I recently attended a seminar on Future of Gold hosted by one of the largest Investment Banks and it inspired me so much that I have written a detailed article on it. I must admit that I did a comprehensive research for 2 weeks to get more insight on gold fundamentals before writing the article. Please have a read and let me know what your views are ?
http://insight.banyanfa.com/?p=363
You may notice that my article would closely compliment with your nicely written article.
Regards
BFA