Looking Closely At Gold As An Investment

The world is categorically divided into two kinds of people. There is one category that is satisfied and content with what they have and the other category comprises people who dream and thrive to fulfil their aspirations and make their dreams come true. 

Having said that, in a country like India where most of the population has a fixed income and an expected monthly expenditure, there is not much left to afford the luxuries of life. Especially for people who fall into this category or any other category for that matter, financial planning and investment is an essential tool that can help people multiply their savings by making sensible and rational investments such as investing in gold.

This article is going to mainly revolve around the concept of gold as an investment and why invest in gold? So if you were looking for some interim details about gold as a form of investment, you are reading the right article. So why invest in gold, when there are numerous other investment options is the most obvious question you may ask. We answer not only why you must invest in gold but also so many other questions that arise when you are considering investing in gold.

So let’s dive deep into every detail of investing in gold you need to know.

How Much Gold Investment Should be a Part of Your Portfolio?

Achieving financial goals in the long term should be your approach to designing an investment portfolio. A financial plan that considers your investment horizon, financial goals, current portfolio arrangement, and risk tolerance must be created. Many experts think that around 10 per cent to 15 percent is what investors must limit their portfolio to. There are a lot of factors that need to be considered before investing in gold.

What is for sure is that gold offers better returns than term deposits and equities. The low correlation of gold with the other assets makes it a fencing asset. Rather than advising you on how much of your portfolio should have gold as an investment, we will throw light on three strategies that can be used by investors in determining the gold composition in their investment portfolio, which will make investing in gold much simpler.

5 Percent to 10 Percent Allocation

If you fall into the category of investors, you are confident that the country’s economy will grow and at the same time, you want to have some kind of insurance in case of unforeseen events that could cause a downward curve. Only then you must allocate something between 5 percent and 10 percent of the portfolio for investing in gold.

15 Percent to 25 Percent Allocation

Some investors are sceptical about how the country’s economy looks currently. If you are someone who belongs to this kind of investor and if you want to invest moderately or maybe you must allocate a little bit higher when it comes to investing in gold and securities related to gold. If you think inflation will rise and it will result in losses or maybe in a total collapse then 15 to 25 per cent is what you must allocate to your portfolio.

30 Percent to 50 Percent Allocation

If you are someone who thinks the Indian economy is on a total downhill and the inflation rate is rising uncontrollably, the rupee value will lose eventually and all this is leading to chaos financially then it is wrong to be enticed to allocate even half of the portfolio for investing in gold and securities related to gold. However, you must remember that such a portfolio that has a high allocation to gold can be very volatile.

Now that we know how much you should be investing in gold, let us also look at what is the most favourable time to invest in gold.

When Should you Consider Investing in Gold?

If you can’t take a call on whether you must buy gold right now or if you must wait. Read on.

Although gold has long-lasting qualities, we expect the best rate we can obtain. It’s natural, and all good buyers will evaluate the timing. It’s an important question all investors ask before execution. Fortunately, history has a practical answer for us.

Looking at the chronological data, we could evaluate the standard loss and gain since 1975. It indicates on average it surges during the early months. Then there is kind of a breather through the summer and spring to take off in fall again. This implies that the most promising times for investing in gold are January and March, maybe early April too. Mid-June to the first part of July is favourable too.

Listed below are some major reasons that would draw people to consider investing in gold.

Why Invest in Gold?

Why invest in gold is a question that a lot of people may be asking themselves. A major reason why people make investments is that they should have backup money if and when an emergency arises.

Gold is a Financial Investment that can be Easily Liquidated

You will always find buyers for gold no matter when you decide to sell the gold. You can save money in the form of gold for the future. It is quite easy to purchase and sell and it has almost zero maintenance.

Gold has Proved Itself as a Barrier Against Inflation

It has been a known fact for centuries now that gold acts as a shield that protects you from inflation. Gold Price remains unaffected when inflation arises. This ensures you don’t suffer losses when inflation hits the market. To be more precise, when it comes to currency performance the Indian Rupee has been underperforming. Therefore Investing in gold would not be wrong.

It Helps You Build Wealth

Gold in the form of investment or otherwise is a precious metal that is valued and passed on to generations. Being valuable adds to the wealth of a family, that is it is imperative to understand why invest in gold.

Gold is a Tangible Resource

If you have tried real estate or any other form of investment, you may be fully aware that gold investment can be so much simpler than other kinds of investment. It involves almost zero risks. It is especially advisable for people who are beginning to consider investing in gold.

Why is Investing in Digital Gold Preferred Over Investing in Physical Gold?

There are quite a few flaws of investing in physical gold. From an investment viewpoint, let us analyze the downsides of physical gold. It will help you choose the right form of gold to invest in and also answer your question of why invest in gold in other forms when you are ready to take that step.

Physical Gold gives you Impoverished Returns

The rate of return of this kind of gold is not very profitable, especially if it is jewellery that you have bought. The jewellery price is determined by the gold price and it is also inclusive of making charges on the jewellery. This is the scenario when you buy the gold. Now let us look at what happens when you sell it. If and when you consider selling your jewellery, you get the price based on the prevailing gold rate minus any making charges whatsoever. This is a major downside of physical gold investment, which compels you to think about why invest in gold in its physical form.

To Store Physical Gold Safely can be an Issue

Stocking physical gold at home is as risky as storing cash. It carries the same threads when it comes to security. It is vulnerable to being stolen at any time. Investors must apply more caution to this asset when storing it at home. Investing in gold in other forms such as gold ETF is better as there is no hassle of storing it.

So now you why invest in gold in a digital form. Let us now look at some of the ways in which you can invest in gold.

How to Make a Gold Investment in 2021?

Various options are listed below that will help you make an informed decision about buying digital gold. It also has information on how safe and beneficial it is. So why invest in gold in the physical form when you have better options.

Gold ETF

Funds that specifically invest in physical gold are gold ETFs. To invest in a gold ETF you need a Demat and trading account. You need to pay a minimum brokerage fee of 0.25 per cent to 0.5 per cent of the total cost of the gold ETF. Gold ETF with Kotak, gold ETF with SBI and INVESCO India are a few of the distinguished and famous gold ETFs to name a few.

Gold FOF

FOFs are referred to as saving funds for gold. These are mutual funds that specifically believe in gold ETFs. The plus point here is that you as an investor don’t need to have a Demat account. This makes it much simpler as compared to gold ETFs as you are required to have a Demat account to invest in them. If you are relatively new to investing in gold then these funds are your safe bet.

Gold Mining Stock

Gold mining stock investment is just like stock market investment except that these stocks are tied up with organizations that are associated with gold mining. The gold rate determines the performance of the gold mining stock substantially. A few other factors include effective management, production cost, hedging activities among others.

Physical Gold

Physical gold investment is the most sought-after method of gold investment. Not to mention it is the oldest method too. When you purchase gold, you are investing in gold. It is as simple as it sounds. However to be strictly talking in the investment sense. There are two methods of making gold investments.

Gold Jewellery

This kind of gold can be bought any time from the neighboring jeweller. The return depends on the gold rate prevailing at the time of selling it. This is Why invest in gold jewellery, it is simple and easy.

Gold Coins and Bars

Glad coins and bars are made up of pure 24kt gold and there are no making charges levied on them. This is the major difference between gold jewellery and gold coins and bars. If investing in physical gold is your thing, then gold coins and bars are way more valuable and promising than jewellery.

Gold Funds Based on Equity

Gold funds based on equity are invested in organizations that are associated with the extraction and mining of gold. They are majorly responsible for marketing gold. The skilled management and systematic approach of funds are important as it infers the companies performance besides of course the gold rate.

As an investor, you must never ignore the financial goals and the overall plan of investment. There may be times when you think investments in gold are highly lucrative more lucrative than any other form of investment. However, you must not forget that markets look at even the smallest events and so many other factors. Therefore you must constantly keep an eye on the risk-return balance and rebalance of your portfolio that will suit your preference from time to time.

Read More: Is investing in fixed deposits better than investing in gold?

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