Gold rewards investors; experts caution!

Gold has reached a new milestone, surpassing $2,300 (INR 83,000) per ounce (28.35 g) on April 4th, marking a record high. This surge in gold prices has sparked discussions among investors about its role in investment portfolios. While gold is known to reward investors, experts caution against excessive reliance on it as a sole asset allocator.

Investors are advised to maintain a balanced approach, diversifying across various asset classes for optimal returns in the long term. Gold, often considered a hedge against market volatility and global uncertainty, plays a strategic role in this diversification strategy.

Naveen KR, a smallcase Manager and Senior Director at Windmill Capital, highlights the current bullish trend of gold, with a 6 percent rise year-to-date, outperforming broader equity markets. He attributes this trend to the upcoming elections worldwide, which typically prompt investors to seek safer assets like gold amid uncertainties.

Analyzing the performance of different asset classes over the years, equities have consistently led in delivering substantial returns. While gold has shown resilience during periods of low or negative equity returns, it serves as a risk management tool within investment portfolios.

Financial advisors recommend maintaining a tactical allocation of 5-10 percent to gold, regardless of its price levels. Viral Bhatt, Founder of Money Mantra, advises investors to consider sovereign gold bonds (SGBs) for long-term investments, while suggesting caution against excessive exposure to physical gold.

Rushabh Desai, Founder of Rupee With Rushabh Investment Services, advises against overindulgence in gold investments, advocating for a balanced approach. He suggests a diversified asset allocation strategy, with equities comprising 50-60 percent, fixed income at 20-40 percent, real estate at 10-30 percent, and gold at 5-10 percent. This allocation is tailored to hedge against market uncertainties while aiming for overall portfolio growth.

In essence, while gold can be a rewarding investment, prudent asset allocation across various classes remains crucial for long-term financial success.