You must be wondering whether you too should take the plunge and invest in a gold fund to participate in the rally. In other words, should every investor portfolio have gold in it?
ETMutualFunds.com spoke to two financial planners for their take on the issue.
However, what is happening right now is not that. This is exactly what we saw in 2016 when people started putting all their money in small caps. There are two ways in which you can buy gold- as an asset allocation to diversify your portfolio or as a strategic investment for a later purchase. If you start buying after a record spike in gold, I don't see it as strategic at all.
Still, if you want to accumulate over long periods, you can. In terms of asset allocation, you should be selling gold right now. That's right. Your 10% allocation to gold would have gone to 12-15%, you have to cut it back to 10%.
Gold is a good hedge for a portfolio. It will certainly not fall like a small cap fund. However, gold has a tendency to remain flat for as long as seven years. That's why we always recommend that you shouldn't go overboard with gold as an asset class. These investors who are jumping on to gold right now need to understand that they bought gold at a higher price and will sell it when it is flat and go back to equity which would have moved up by then. Hence returns were not made.
Gaurav Monga, Director, PxG Consultants, a Delhi-based financial planning firm.
I have always said that gold as an asset class should be seen only as a diversifier. Sure, there are other diversification tools as well. Over the years, geographical diversification has came up quite well. However, we understand that even though gold can go without any returns for years, but it doesn't fall much.
If you have bought units when gold was at Rs 35,000, chances of it going to Rs 30,000 are very low. That's why gold becomes important for those who want to safeguard an aggressive portfolio. This steady nature is needed more in times of crisis. In a global crisis which is unprecedented, an allocation to gold can hedge your portfolio and hence we recommend gold funds and ETF.
Having said that gold funds and ETFs shouldn't be looked at as primary return generators in the portfolio. Don't go overboard on gold because in the long run it wont give you returns to meet your financial goals.
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8 Comments on this Story
Bijul Desai204 days ago
If someone is smart enough will start offloading gold to book profits ....one thing is sure ...what's up today will be down tommorow cyclic ....it's good time to be invested in equity now ..you will get good returns in coming years
Anil Jain206 days ago
Debasemet of currency leads to rise in prices of all real goods and metals. Gold,silver,copper Aluminium prices would see major rise including Dollar based assets .
Atul Doctor206 days ago
Mr. Raj. U r absolutely right. I appreciate your views. Atulbhai doctor. Baroda.