Gold is not used just to make jewellery and ornaments. it is also considered a popular form of investment in India. Many Indians think investing in gold is an excellent investment and provides protection in a financial emergency. The question is, "Is it a good idea to invest in gold?" In This article, we will discuss various advantages and disadvantages of investing in gold.
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Advantages of investing in gold
1. Gold is a hedge against inflation
Gold is popularly considered as a hedge against inflation. It has a direct relationship with inflation. During the periods of inflation, investors fear, stocks and debt funds could underperform. But, gold has historically performed well during inflation.
One of the factors which makes gold a good investment is liquidity. Gold can be easily converted into cash whenever you want. When compared to other investments, gold is the only investment which has high liquidity.
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To reduce the risk in investment, it is important to diversify your investment portfolio. Gold is an easy and convenient way to diversify the investment portfolio. Gold is inversely correlated with the stock market and currencies.This means gold moves in the opposite direction to rupee and stock market movements.
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4. Holds its value over a long period of time
Gold holds an inherent value over a period of time. Even if the price falls, the underlying value of gold does not change much. This is mainly because it is a commodity, whereas Indian Rupee, which is a form of fiat currency, holds no intrinsic value.
5. Most desired commodity
Indians buy gold more than any other country in the World and gold has been a favourite commodity for both men and women. Gold is used in jewellery since ages. Gold is not subject to any political chaos and signifies how wealthy a country is.
The disadvantages of investing in gold
1. Gold is not a passive investment
Gold is not a passive investment like stocks and bonds. Passive investments earn regular income in the form of interest and dividends. But, the only income you can get from gold is when it is sold in the open market.
2. Gold is difficult to store
If you love holding physical gold, then storage is the biggest issue. Gold has to be stored and guarded carefully, as it is of high value. If you place your gold coins and jewellery in a bank locker, you must pay locker maintenance charges each year.
3. Price correction can lead to losses
Sometimes the value of gold rises say when stock markets crash and investors rush to invest in gold at high prices. Once the panic dies down, the price of gold corrects itself. This might lead to losses for the investors. Be Wise, Get Rich.
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