5 right reasons to invest in gold
People invest in gold for many reasons - and mind you, many even invest in gold for the wrong reasons. By investing in gold for the wrong reasons, many end up with dud investments and not meeting their financial goals.Here is a look at the five right reasons to invest in gold. Before you read any further, do keep in that you investment in gold (in all its forms) should not exceed 5-10% of your total portfolio.
Also read: 6 ways to buy and invest in gold
1. Use it as an inflation hedge
When inflation increases, the value of currency decreases. And in the long term, almost all major currencies in the world have depreciated in value relative to gold. This is why people hold money in the form of gold. In times when inflation remains high (like now), over a longer period in the economy, gold becomes a hedge against inflationary conditions.2. Gold is tangible
Gold is one of the few assets that is tangible, and this is why it creates a perception of safety among investors. Buying gold is easier compared to purchasing other tangible assets like real estate. Further, because of its tangibility, while assets stored digitally are prone to hacking and other misuse, gold is free from such concerns. However, it does come with its own risks. So, be mindful of them.3. For portfolio diversification
Some economists believe that gold is a highly effective portfolio diversifier due to its low to negative correlation with all other major asset classes. Still, as a rule, gold shows no statistically significant correlation with mainstream asset classes.However, some suggest that there is evidence that when stocks are falling sharply, an inverse correlation can develop between gold and equities. Gold protects an investment portfolio from volatility because macro-economic and micro-economic factors that affect the returns of most asset classes do not significantly influence the price of gold. For a given level of returns from a portfolio, the risk or volatility can be reduced by adding gold to it.
4. Gold provides liquidity
Investments in gold can be liquidated much faster than other physical assets like real estate. There is no lock-in period in gold investments except for sovereign gold bonds. The redemption amount (amount you get when you sell gold) in the case of physical gold will depend on the purity of the gold, denomination, market price etc. One can we can take loan against gold in times of need.In the case of paper gold, the market price on the redemption date determines the redemption amount.
Also read: Gold is not a good investment. Here are reasons why
5. Geo-political factors
Gold usually does well during geopolitical turmoil. Crises such as wars, which have a negative impact on prices of most asset classes, have a positive impact on gold prices since the demand for gold goes up as a safe haven for parking funds.Connect with Experts - Wealth creation made easy
This story originally appeared on: India Times - Author:Faqs of Insurances
