Gold is believed to be one of the safest investments. Not only has gold made a comeback in the investment portfolio; it has dominated the market for centuries. Gold has always been a source of trade even before a sophisticated and systemized economy came into existence.
Rulers and people have held gold as a symbol of prosperity and status quo and have used it to buy and trade. However, with the introduction of various other avenues like mutual funds, stocks, bonds, fixed income assets, and bank savings accounts, the popularity of gold has gone down. Yet, this precious metal is very important to countless investors.
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Holding gold as an investment has often led to several debates and discussions as people fall in two broad schools of thought. The first is to have no or only minimal gold and the other to have considerable and a comfortable amount of gold in the portfolio. Make sure to have 5-10% of gold in the portfolio.
1. The conservative school of thought
According to the conventional school of thought, people believe that only 5-10% of the portfolio must comprise of gold as an investment as huge sums of money get blocked. The conservative approach is however more focused on the fact that people are always in a rush to enjoy returns generally in the form of dividends or bonuses and not a prolonged return over past investments.
This approach focuses more on the part that people are always in a hurry to enjoy returns and gold is the only insurance against market fluctuations. The maximum permissible limit for gold investment as per this approach is 10% of the total portfolio value. Any investment beyond 10% is just a waste of money.
2. The enterprising school of thought
The second and more relevant school of thought is gold gives excellent returns. People who invested in gold have actually enjoyed excellent returns except for a span of three odd years in the last 20-25 years. The returns from gold are higher than stocks and mutual funds.
Gold is an insurance against volatility. All investors know that markets are never stable but extremely volatile. It is always a good idea to have gold in the investment portfolio which helps balance out the overall risk and volatility in the portfolio.
As gold is available in different forms like gold coins, digital gold and so on, investors have several options to chose from and make an investment in gold. In this approach, you can invest in gold up to 20% of the value of your portfolio and even more as per your choice and investment horizon.
Decide on your gold holdings based on the type of investor. The range is simple and obvious, 5% to 20%, but this is completely a selective decision. If you think you are more inclined towards gold and have enjoyed greater returns in the past, increase this number.
As gold is an excellent way of diversifying your portfolio, you can always make incremental payments in gold to the portfolio. However, you must exercise due diligence while investing in gold. It may be your choicest investment avenue but remember, there is no point overly investing in gold as diversification would be affected.
See Also: Gold Investment in India
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