How Much Gold Investment Is Right For You?

  Author: Kundan Kishore

Experts always encourage you to invest in different asset classes so that you can manage the investment risks associated with each asset class and the investments in them. So, when it comes to gold investments, what is the right amount of gold investments you should have in your portfolio?

Restrict gold to 10-15% of investments At FundooMoney; we suggest that gold investments in any form shouldn’t cross 10-15% of your investment portfolio. When you start investing early in life, most of the long term investments should be in equity investments like equity funds that typically provide the highest returns in periods of over 8-10 years or more.

Gold investments in the form of gold mutual funds and gold exchange traded funds (ETFs) help you in periods when the equity or debt markets don’t do well. It ensures that in such years, your investments get some basic growth.  In periods of high inflation too, gold investments are likely to give you returns that match inflation. But you should never overdo gold investments. Here is some statistics that will tell you why.

The gold price was Rs 3,939 per 10 gram at the end of 1994 and, after eight years, at the end of 2002, the gold price was at Rs 4,286 per 10 gram, or a return of mere 8.8% in eight years. This translates to an annual compounded growth of 1.06%.  Just imagine the plight of the person who had large amount of investments in gold.

Portfolio approach to gold The key is to stick to this percentage. This means investing more when the percentage is lower than the thumb rule and perhaps paring the exposure when the percentage is significantly higher than the thumb rule.