Arti Arora, CFP | Head Financial Planner
We are just a week past Diwali and if there is one question that I have almost everyone come up to me with is the heading of this blog. It all started a month before Diwali and it still remains.
Is Gold worth buying at the current levels?
Most of the Indian Households have a fetish for gold and we look for reasons, religious and personal to buy the yellow asset.
For starters, the gold jewelry that you have been buying and still continue to, is not and should not be considered as an investment. If you really want to invest in gold, the gold coins or bars, gold ETFs and funds and of course the sovereign gold bonds issued by the GOI are more viable avenues that one may consider.
The last one year has been a period of gold rallying up big time and if I take the ten year period from 2010 to till date, the CAGR of gold has been in the range of 12-14% which is above average returns when seen vis-à-vis debt and alternate investments . The gold appreciation was always expected but this rally to over 50000 / 10g levels in a rather short span of time was largely unprecedented.
So, where does this take us? Is gold priced abnormally high or there still is sheen in the yellow metal? Should I buy or should I not? Little less or little more?
These are some of the common questions that I have been asked by friends, family and of course by our valued clients and they are still coming up.
Gold as an asset class has many benefits and as a part of my financial planning exercise, we always recommend 15-20% of the total investment portfolio to be earmarked to gold in investment sense (no jewelries please).
No one can predict what will happen next as far as gold prices are concerned, yes the gold prices look quite stretched but then we cannot be 100% assured that there would be no further upswing or that there will be a sure shot downward trend from hereon.
Avoiding any kind of forecasts for the time being, my advice is very plain & simple. When in doubt, stagger the investment. Buy gold as an investment in remunerative avenues and not an indulgence, just bring down the volume you buy whatever it may be and spread it evenly across a chosen time period.
Just like SIPs in Mutual Funds, you can consider doing one in gold by buying it at regular intervals in place of investing the entire amount in a lump sum purchase. This way, the fear that gold prices are too high or may fall in future will not only be taken care of but will also stand to benefit you.
Gold provides hedge against inflation and this benefit of gold cannot be over emphasized. The diversification benefit is of course there.
When you invest in Gold, try and keep a slightly longish time horizon to ward off risks from short term volatility in gold prices. Ideally speaking, for a goal due any time within next 36 months, we do not recommend allocation to gold funds or bonds or keep it to a minimal.
A small word of caution especially in the Corona times when there is a general cash strain; the staggered purchase options applies only to those who have ample liquidity in their portfolio. Pulling money out of your emergency fund reserves for buying gold is neither worth the risk nor the stress that will come as add-ons in such a scenario.