Indians have had the tradition of buying and inesting in gold since decades. The precious yellow metal has been a valuable asset for investors in times of inflation and market downturn. Experts often encourage investors to own the yellow metal to diversify long term portfolios. But how does one decide the best time to invest in gold?
To explore how gold works as a diversifier and hedge against inflation, Economictimes.com conducted an exclusive session recently. Financial experts like Feroze Azeez, Deputy CEO, Anand Rathi Private Wealth Ltd and Ghazal Jain, Fund Manager, Alternative Investments, Quantum AMC spoke on the role of gold as an asset class in financial planning.
“Looking at several pieces of information, we realize that years when Nifty has shown maximum drawdown, gold has shown a positive return. In FY20 when Nifty fell 38 percent, gold in the worst situation gave 7 percent positive return,” cited Azeez during the session titled “Is this a good time to invest in Gold?”
On being asked about the proportion of gold that investors should hold in their portfolio, Azeez said: ”It can range between 5 and 10 percent (preferably) when you’re skeptical about where the markets are headed. Five percent allocation can be taken in the normal course.”
Since gold also has an exposure to global currency like the dollar, it acts as a very good tool to meet some global objectives like child’s education abroad or world tour, etc, in overall financial planning, added Azeez.
Is this a good time to invest in gold?
Experts discuss the role of gold as an asset class in financial planning and the best ways to invest in gold-related financial instruments.
On using returns from gold investments in equities or any alternative investments when stock market show an upward trend, Ghazal Jain of Quantum AMC said: “I
n this exercise of booking gains and reinvesting in an attractive asset class, it is important for investors to approach it strategically and not tactically because markets are unpredictable and asset classes tend to move up and down in cycles responding to the dynamic market environment.”
Jain was of the opinion that investors tend to go overboard in the winning asset class and completely discount the asset class that may not be performing during a market cycle. This can be counterproductive because often the best performing asset class (in a year) may not necessarily be the best performing asset class in the next year. “The original asset allocation mix created by an investor based on objectives, time horizon, risk taking ability, inevitably changes because of the different returns among the various asset classes. As a result the percentage allocated to different asset classes may vary. To ensure that your portfolio is composed in a way that adheres to your risk profile and investment strategy, rebalancing comes into the picture.“
A 10-15 percent strategic allocation to gold can be ideal for investors without hurting returns and reducing risks.
“Over longer periods of time, gold prices can be expected to keep pace with real increases in the cost of living,” adds Jain.
Once investors understand the value of gold in their portfolio, the next step is to choose the most liquid, well-regulated product available. Gold ETFs can provide cost efficiency with excellent liquidity. To learn more about best practices for investing in gold watch the full session here
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.