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Should You Have Gold in Your Portfolio?

Updated on :  

08 min read.

It would help if you diversified the portfolio with gold as a hedge against inflation. You will find the price of gold rising in response to certain events that reduce stocks and bonds’ value. It helps to protect your portfolio against adverse movements in the stock market. 

You could purchase gold as a strategic investment. However, you could invest in paper gold, such as Gold ETFs and gold funds, instead of physical gold. You have Gold Exchange Traded Fund as a type of mutual fund that tracks the domestic price of physical gold. 

It helps avoid the hassles of storage and making charges as compared to physical gold. You have gold funds as open-ended mutual funds that invest in units of Gold ETFs. The gold price movements influence its price in the market.

How much of your portfolio must be in gold?

You have experts advising you to allocate 10%-15% of your portfolio towards gold. It is inversely correlated with the stock market and could do well during an economic slump. You may consider staggering your investment in Gold ETFs through the systematic investment plan or SIP.

It helps you accumulate units through a disciplined approach of investing fixed amounts regularly in a Gold ETF of your choice. You will reach the requisite allocation towards gold in your portfolio over some time. 

You may invest in gold if you have an aggressive portfolio. Its price rarely falls and can protect the value of your portfolio. However, you cannot invest in gold to achieve long-term financial goals. You have gold offering low returns as compared to equity investments for several years. 

For example, you may invest in equity funds to achieve long-term financial goals, such as buying a house if it matches your investment objectives and risk tolerance. It may offer an inflation-beating return over the long run due to the compounding benefit and can be a tax-efficient investment.

Guidelines to allocate gold to your portfolio

Allocate gold to your portfolio based on financial goals:

It would help if you allocated gold to your portfolio, depending on your investment objectives. You can use gold as a portfolio diversifier rather than an investment to give you a higher return in the short term. Moreover, gold is a suitable investment if you are a conservative investor.

Check gold price valuation as compared to other investments

You may consider rebalancing your portfolio at least once every year. You could consider adding gold to your portfolio on a correction in gold prices if your portfolio lacks adequate allocation to this asset.

Focus on the correct allocation towards gold

It would help if you had a suitable investment at the appropriate time in your portfolio. You have wealth managers advising an allocation of around 10%-15% towards gold in your portfolio. 

Suppose you allocate 5% of your portfolio towards gold. You would find the investment insufficient to protect your portfolio against the adverse movements in the stock market. 

Protect your portfolio from a global crisis

You have the coronavirus pandemic resulting in an economic slowdown across several countries. Your allocation towards gold can protect your portfolio during a global financial crisis. 

You must have the proper allocation towards the investment if it has to function as a hedge against geopolitical risks. Moreover, it would help if you held gold in your portfolio for the long-term rather than trade-in and trade-out of the investment.

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