Investors are always looking for ways to optimize their portfolio with the right assets. But when you choose an asset like gold it’s important to get both the form and allocation right. To make your job a tad easier, we’ve compiled a list of general allocation estimates for gold.
However, we highly recommend you consult a wealth coach before you invest in gold or any other asset. Every investor is unique and only a trained financial professional can tell you what’s best for your individual portfolio.
How Much Of Your Portfolio Should Include Gold?
Gold is an asset that is inversely correlated with the market. It does well during economic slumps. This is why investors prefer to add gold to their portfolio - to hedge against inflation.
Most estimates suggest that gold investments should make up only 5-10% of your portfolio and not more. This will ensure that your portfolio has room for other investments like mutual funds, stocks, P2P lending, etc.
There are other sites that may suggest more conservative, or aggressive allocation such as:
However, a one size fits all approach cannot be taken when purchasing gold or digital gold. Any investment you make should be based on your investment goals and risk appetite. Consulting a trained financial professional or advisor can help you understand your risk profile.
The Traditional Way Of Buying Gold
Physical gold is one of India’s favourite asset classes. It represented 48.2% of physical assets in India for FY2019. But with the advent of investment apps like Cube that simplify wealth creation, gold can be bought digitally.
Buying jewellery, coins, and bars or Gold Savings Schemes are the traditional forms of investing in gold. But there are risks that come with this form of gold - fear of theft, storage concerns, and making charges.Moreover, physical gold can not generate passive income on top of the security concerns. However, there is an alternative.
Digital Gold: The New & Improved Way Of Buying Gold
The new-age way of investing in gold purely for profits includes digital gold, Gold ETFs, Sovereign Gold Bonds, and Gold mutual funds. These gold assets carry lower expenses than physical gold.
Paper gold includes investment options like Exchange Traded Funds (ETFs), Sovereign Gold Bonds (SGBs). Both Gold ETFs and SGB invest in gold bullion. Gold ETFs can be bought and sold on the stock market while SGBs are sold via a subscription process by the RBI.
However, there are limited number of Gold ETFs and the subscription process for SGBs is subject to availability from time to time.
But gold can be one of the best investments you can make for diversifying your portfolio. Let’s look at the portfolio allocation for gold according to experts.
Watch this video to learn more about building the perfect portfolio
Summary
Gold as an asset has its benefits. But it’s important to allocate gold in your portfolio based on your investment goals, risk appetite and other factors.
There are 2 routes you can take:
Allocate a portion of your portfolio in gold purely for profits and to hedge against inflation - digital gold, Gold ETFs, SGBs.
Buy gold for profits, to hedge against inflation, and to physically own it - jewellery, coins and bars.
Note:
Facts & figures are true as of 13-10-2021. All information mentioned is for educational purposes and relies on publicly available information. None of the information shared here is to be construed as investment advice. We strongly recommend you consult a Cube Wealth coach before investing your money in any stock, mutual fund. PMS or alternative asset.
Experts typically recommend devoting between 5% to 10% of your portfolio to it. "This amount aims to balance the benefits of diversification with the unique risks and fluctuations of the gold market," says Nicholas Ganesh, manager at Endeavor Metals Group.
By investing in gold for the wrong reasons, many end up with dud investments and derailing 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 your investment in gold (in all its forms) should not exceed 5-10% of your total portfolio.
If you follow this basic, yet effective asset allocation strategy, you'll have more room in your portfolio for investments in gold each year. That all being said, most experts advise limiting your gold investment to no more than 10% of your overall portfolio.
If you wish moderate growth, keep 60% of your portfolio in stocks and 40% in cash and bonds. Finally, adopt a conservative approach, and if you want to preserve your capital rather than earn higher returns, then invest no more than 50% in stocks.
Investing in 1-ounce gold bars, like any other investment, generally requires a long-term perspective. While gold has proven to be a reliable store of value over time, its price can experience short-term fluctuations — especially in uncertain economies like the one we're experiencing now.
And, gold's low correlation with other assets makes it an effective diversification tool during such turbulent times. So, with the risk of heightened geopolitical tensions affecting financial markets in 2024, adding gold to your portfolio can help mitigate risk and enhance overall stability.
Con: It doesn't give you passive income or steady returns
Unlike some investments that yield passive income (e.g., rental properties, some stocks and bonds), physical gold doesn't provide passive income, dividends or interest. You will only earn once you sell your gold.
For short-term needs, cash is better due to its unmatched liquidity. For long-term buy-and-hold investments, gold is preferable to protect against inflation and provide portfolio diversification. The ideal solution is to hold both but allocate based on your specific needs and risk tolerance.
Gold Prices Are at Record Highs—and They're About to Shoot Even Higher. Gold is now trading at record highs —and it could hit $4,000 per ounce or more.
As Buffett told his shareholders at a Berkshire Hathaway annual meeting, “If you take all the gold in the world…and put it into a cube, it will be a cube that's about 67 feet on a side…but it's not going to do anything for you.” Buffett therefore doesn't see any utility in owning gold because it can't produce things.
Two Jakarta-based commodity analysts forecast that the price of gold could reach as high as $3,000 per ounce in the next five years. While they remain bullish, they cautioned that many factors could affect the price of gold within this timeframe.
How Do Beginners Buy Gold? Mutual funds and ETFs are probably the smartest options for beginners. Each share of these securities represents a fixed amount of gold, and you can easily buy or sell these funds in your brokerage account or retirement account.
A stock portfolio focused on dividends can generate $1,000 per month or more in perpetual passive income, Mircea Iosif wrote on Medium. “For example, at a 4% dividend yield, you would need a portfolio worth $300,000.
While institutional investors and endowment funds often invest much bigger chunks of their portfolios in real estate (including both public and private debt and equity securities), I'd argue that most individual investors should keep their real estate exposure limited (which Morningstar defines as 15% of assets or less ...
Gold Coins: Assuming an average premium of 5% to 10% over the spot price, you can purchase around 4.5 to 4.7 troy ounces of gold coins with your $10,000. Gold Bars: With lower premiums, possibly around 2% to 5%, your $10,000 could buy you closer to 4.8 to 4.9 troy ounces of gold in bar form.
Remember, however, many gold dealers have minimum purchase amounts, such as 10 gold coins. With $1,000, you may find it easier to invest in gold ETFs, IRAs or gold mining stocks. While higher investment amounts deliver higher returns, you can reap the benefits with any deposit amount.
Medium weights (10-100 grams): These gold bars offer a balance between affordability and potential for price appreciation. They tend to be suitable for investors with moderate budgets and a medium- to long-term investment horizon.
Throughout history, gold has been seen as a special and valuable commodity. Today, owning gold can act as a hedge against inflation and deflation alike, as well as a good portfolio diversifier. As a global store of value, gold can also provide financial cover during geopolitical and macroeconomic uncertainty.
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