What is the role of gold in your investment portfolio?

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Buying gold is a tradition for Indians that doesn’t seem to fade. Most people invest in gold for weddings and even on auspicious days like Dhanteras and Akshay Tritiya as it is considered lucky. Also, because it is seen as a security in turbulent times and hence, has been for ages, passed on as an inheritance.

However, have you ever wondered what is the role that the yellow metal in your investment portfolio?

Apart from adding debt instruments like FD, PPF and taking some exposure to mutual funds to get access to equities as an asset class, and investing in real estate, one must look at adding gold to get the required diversification in portfolios.

Gold is not only seen as an ideal source of diversification for a portfolio but it also provides a hedge on which investors rely to manage risks and preserve capital more proficiently, especially in times of financial crisis.

Here are five ways in which investing in gold benefits investors 

1. Gold has negative correlation to stocks and other financial instruments and thereby protects investors from volatility.
2. It is seen as a hedge against inflation as typically the value of gold rises when the cost-of-living increases.
3. The yellow metal is a highly liquid asset class. It can be immediately liquated into cash in times of emergencies without any down time.
4. It is seen as a crisis asset, as it retains its value, in fact at times witnesses a rise in value through financial and geopolitical uncertainties. For instance gold had outperformed other asset classes in the dotcom bubble of 2000 and also in the global financial crisis of 2008.
5.  Gold investment does not require a special skill or knowledge. One can simply go to the gold shop and buy Hallmark gold. Apart from this, once can invest in gold via many convenient and cost-effective ways like mutual funds, bonds or even ETFs.

Experts are of the view that investors must definitely allocate some portion of their investments to gold. Most experts say one should look at investing 5-15% of their portfolio in gold. While for investment purpose only, experts are now asking investors to explore more cost effective ways like ETF and sovereign gold bonds.