Investing all your money in any one asset class is always a risky business. Modern portfolios require you to consider all your investment options. An optimum portfolio is one which has the highest return for a given level of risk. Equity should definitely get the larger chunk, and that should be invested systematically in solid, remunerative businesses with a long-term perspective.
If an investor follows the modern portfolio theory, buying stocks and mutual funds, it may be advisable to put a small percentage of the portfolio in gold. As this will help diversify the portfolio. One should also occasionally rebalance the portfolio as per need, risk profile and economic environment.
Now, the question is how much gold should one have in a portfolio? Having even 10 per cent of your assets in gold can ensure a fair amount of safety.
In the current market scenario of high volatility and rapid changes, various alternatives are available for investment in gold through options like coins, bullions, gold ETF, e-gold. Gold ETFs are typically open-ended, passively-managed funds that closely track gold prices in the domestic market. Bleak earnings outlook and pricey valuations have recently soured sentiment in Indian stocks among foreign investors.
On the flip side, gold has caught the fancy of investors in 2017 amid rising geopolitical concerns. The rupee has fallen close to the 66 level against the US dollar for the first time in more than five months amid geopolitical concerns and fears that the US Federal Reserve would go for an interest rate hike. Owning gold can be an attractive insurance policy in case of stock market turmoil or deceleration in the domestic currency.
Gold prices have risen across the globe due to various uncertainties such as geopolitical tension and weak global economy. A threat by US President Donald Trump to ‘totally destroy’ North Korea gave boost to gold, as it is seen as a safe investment in times of uncertainty. Back home, spurt festive season and wedding demand may push gold prices higher.
With the domestic stock indices near their peak levels, uncertainty in the global economic and geo- political arena, inflation edging higher, festive demand and falling interest rates have ensured that gold find its footing. Investors are advised to put some percentage of their investment in gold through options such as gold ETF and e-gold with a long-term perspective.
(The author is Chairman and MD, SMC Investments and Advisors. Views and recommendations given in this section are his own and do not represent those of ETMarkets.com. Please consult your financial adviser before taking any position in the stock/s mentioned.)