There is a strong possibility that you have considered investing in gold on more than one occasion in your life. Gold, more often than not, is seen as the ultimate investment to dig into, in times of financial duress. Investing in gold has evolved from traditional approaches – buying jewellery or gold coins/bullions to the relatively recent trend of gold funds.
Here is the basic and beyond of what you need to know before including the shiny metal in your investment portfolio.
1. It’s the Foundation Asset
The World Gold Council sees gold as the foundation asset in a savings portfolio and rightly so. For decades, (rather centuries), investors have used gold as an asset that offers safer stores of value and is a potent wealth preserver.
2. Physical Gold or Funds, it’s Your Call
If your objective is to harp on the increasing value of gold in the future, but not wanting to spend on physical gold assets, gold funds like ETF and mutual funds are your answer.
Gold ETF – Exchange Trading Funds, track the price of domestic physical gold and can be bought and sold at stock exchanges, with gold as an underlying asset.
Choosing ETFs over physical gold will mean no extra making charges, transparent pricing (being possibly the closest to actual gold prices) and quashing concerns of safe keeping.
Some of the top ETF’s in India right now are Invesco India Gold ETF, Canara Robeco Gold ETF, ICICI Prudential Gold ETF, and so on. Keeping an eye on the market will help you opt for the fund which has a high trading volume and is low on tracking errors.
Also, know that gold ETFs are taxed and are non-equity investments.
3. It may Not Give You Exceptional Returns
It is fair that you have thought of the yellow metal as a hedge against financial catastrophe. But be prepared for returns that do not match your expectations. The gold highs, come with troughs too. Market moods change unexpectedly and rising investor confidence will mean a shift to high risk, extra return options, thus hitting the price of the yellow metal. Some experts even believe that the return will be restricted to single digits over a long period.
4. Limited Exposure is Good Exposure
The ideal exposure to gold in your portfolio should be around 5-10 percent as suggested by many experts. While going beyond that figure may warrant more stability during a financial crisis, it can also significantly bring down the overall returns. Many ETFs have, for instance, seen the returns fall over the last few years.
The feelers from investors right now, however, point to rosy days ahead considering the economic volatility around the globe. But being wary around gold is always a good habit.
5. Think Long Term
Gold, in itself, does nothing, earns nothing and it doesn’t pay any dividend. Despite that, it does warrant a place in your portfolio. Link your investments in gold to a long-term goal. See it as a long-term cushion to financial jerks, rather than a high return foolproof investment.
