Firstly, I have taken returns of 2008, which was the worst year in terms of equity returns i.e. -52%.300" srcset="https://www.planyourfinances.in/wp-content/uploads/2019/07/Gold-Allocation-in-Investment-Portfolio-300x300.png 300w, https://www.planyourfinances.in/wp-content/uploads/2019/07/Gold-Allocation-in-Investment-Portfolio-150x150.png 150w, https://www.planyourfinances.in/wp-content/uploads/2019/07/Gold-Allocation-in-Investment-Portfolio-200x200.png 200w, https://www.planyourfinances.in/wp-content/uploads/2019/07/Gold-Allocation-in-Investment-Portfolio-65x65.png 65w, https://www.planyourfinances.in/wp-content/uploads/2019/07/Gold-Allocation-in-Investment-Portfolio.png 452w" sizes="(max-width: 300px) 100vw, 300px"/>Buying Gold for investment purpose is not considered a good strategy because neither does the Gold gives handsome returns nor the dividend as equity investment gives. Warren Buffet has termed Investment in Gold is “Stupidity”. However, each time when the gold prices surges and market plunges, there is a talk about “hedging portfolio through Gold”.
Most of the financial planner suggests that gold should be bought only for personal consumption in the future and not for the investment as the same does not provide any considerable returns. Investment in gold like bullion, bars, biscuits, jewelry, and coins comes with an inherent risk of security, storage, and safety, and the returns are thoroughly dependent on the price of the gold which swings with the inflation rates, GDP numbers, monsoon, political turmoil, war, etc. Even if one insists on buying on gold as an investment then the same shall not construe more than 5% of the portfolio.
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Gold prices are inversely proportionate to equity i.e. one rises while other falls. If you look at the historical returns, equity provides better returns than Gold. However, the volatility in equity is far more than as compared to Gold. But after witnessing the market crash in 2008 (global meltdown which is a very rare event and does not happen too often), many astute investors started hedging their investment portfolio through Gold.
With recent wild swings in the share market, many investors have started feeling like 2008-09, and the question of investment in Gold has started popping up in the mind again. But one question remains constant that how much gold should be in an investment portfolio or how much gold allocation in the portfolio.
The answer to this question can be ascertained by considering three situations