The recurring market volatility has put the spotlight back on the risk versus returns aspect of the stock market. This is because the risk of investing in stocks has now prompted many to opt for alternate investment options like gilt funds and fixed income options like bonds, bank deposits and money market instruments. Apart from these, many people are considering the idea of parking their money in a gold fund. The constant fluctuations in gold prices have helped many to earn good returns over a long period including the half-yearly interest for eight years and the redemption amount.
Now many investors inquire if investors must include gold in their portfolios. The effect of including gold in one’s portfolio can have a rewarding effect on your investments besides helping in diversifying them. More than the returns and the effect of diversification, there are other tactical reasons for adding gold to your investment portfolio.
Shield against inflation
Gold can be used as a useful safeguard against currency debasement and inflation. The continued effect of inflation has marred our chances of earning high returns while also reducing the value of our savings. The decision to diversify your portfolio with gold can help. When the market falls, both stocks and bonds take a beating. The price of gold being inversely proportional to the stock movement increases. The gold in your portfolio can be an effective hedge against multiple factors including inflation, global metal trade and other geopolitical concerns.
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Planned investment
The price of gold does not move drastically and is more or less stable even during extreme market conditions. For example, during the Covid-19 market crash, gold served as a strategic investment option for many. Throughout all stages of the pandemic, the performance of gold remained constant even when the entire market was in the doldrums. The consistent performance of gold attracted new investors while the old investors decided to top up their portfolios with more gold investments. If you are looking to stay invested in gold for a long period, you may consider putting your money in sovereign gold bonds or gold mutual funds or gold exchange-traded funds (ETFs).
Necessary diversification
Diversifying your portfolio is one of the prime reasons for foraging in gold investments. More than the charm, it is the calm of this yellow metal that lends strength and stability to your portfolio. The price of gold is inversely proportional to share prices and stock valuations. This is why the price of gold rises when the stock market falls, thus, helping you balance your portfolio in terms of returns on investments. The diversification of assets using gold ensures that your entire portfolio is not in the red due to market circumstances.
Benefit of liquidity
If you have invested in physical gold, you can sell it anywhere for money when the need arises. Similar is the case with gold ETFs and gold mutual funds that you can redeem on short notice whenever you need money. Compared to equities and bonds, gold is an interesting investment cushion that you can fall back upon. Though the price of gold is constantly fluctuating, it is relatively a more stable investment than equities, thus, putting to rest all debates surrounding its purchase and sale.