The competition between the asset classes in the market is ongoing. With a range of investment options, making investment decisions has become a major concern.
While gold still holds its traditional lustre, crypto-assets like Bitcoin have been creating a buzz in the market for the last few years.
Alternatively, the stock market is gaining momentum as a lucrative investment opportunity. The asset classes further include bonds, mutual funds, real estate, commodities, and the list goes on.
Here, the important question is how to make high-return investments. The key is to hold favourable asset classes that minimize the risk and ensures stable rewards.
Let’s look at some of the popular investing options - crypto, stocks, and gold:
Crypto
Cryptocurrency has emerged as a distinct asset class in the last ten years. It is a speculative asset with high risk and potential for high returns.
For instance, in the last few months, we have seen how a single tweet can take its value up by 20 percent and similarly take it down by 50 percent for no apparent reason.
One of the most popular crypto assets, Bitcoin started at a valuation of less than a US dollar but is much more than $22 thousand today. This asset class is suitable for investors who seek speculative investing.
It is gradually becoming popular among new-age investors, especially millennials. In India, there have been persistent speculations about its legal status.
However, the government has shown intentions of regularizing crypto, and its prominence as an asset class will unfold in time. Now they are taxed at 30 percent.
Stocks
Retail participation in the stock market has been at an all-time high across India.
Despite the blows of the pandemic, global crisis, and the early signs of inflation, the market indices have been above average. With the ongoing printing of US currency, investment in equity remains favourable.
In addition, the transactional cost in the stock market is much lower than in other asset classes. Buying a stock, for example, can cost as little as 25 paise, whereas purchasing real estate will cost 5-7 percent of the property value.
According to the current market graph, almost all asset classes will rise in the next ten years, but equities will outperform other investments. After equities, gold is another asset class that is set to grow in the years ahead.
Gold
Gold is one of the oldest world reserve currencies. It is a traditional asset that has been one of the foremost sought-for investment classes for years.
In the last decade, the debt mutual funds outperformed gold as an investment. However, as we look ahead, the markets suggest otherwise.
The next few years will be favourable for those who have investments in gold. By 2030, the value of gold is projected to reach $3000/ounce.
Therefore, investors who have debt mutual funds and fixed deposits on their portfolios should shift to gold for favourable returns in the next ten years.
Investors who intend to invest in debt mutual funds, bonds, and fixed deposits should rather shift to gold over a period of time.
While these asset classes yielded good returns in the past, their interest rate will remain neutral or decline in the future.
The bull run in the global bond is near its end. In the year 1981, the interest rates in the US Fed were around 12-13 percent, however, now rates are around 2-3 percent.
The correlation between interest rate and bond prices is with a decline in the interest rate the price increase in the bond market. Therefore, investors looking to invest in a conservative asset class should opt for gold for a better return on investments.
Conclusion
The Indian economy is perpetually bullish because of its TINA (there is no alternative) factor. India is a democracy and has a younger demographic dividend.
The uptick in retail participation in the stock market is an indication of the same. For both seasoned and new investors, optimum allocation of assets is the right strategy to ensure lower risk and higher returns.
Therefore, consider investment goals and risk tolerance to make informed and favourable investment decisions.
(Amit Jain is Chief Strategist - Global Asset Class, Ashika Group)
Disclaimer: The views and recommendations made above are those of the author and not of MintGenie.
