Building a sustainable portfolio – How much should you invest in gold?

Management of personal finance is a critical life skill. There are basic thumb rules for managing finances, savings and investments. A 50-30-20 rule in place could be beneficial for many individuals to meet their financial goals - 50 percent for meeting essential expenses, 30 percent for aspirational purchases, and the balance 20 percent needs to go into savings for the long term.

When it comes to investing in gold, how much of your portfolio should be in gold so that your investments have adequate diversification? A balanced portfolio is the one that is spread over different asset categories. The basic categories of investment remain in either equity or debt. Equity is ideal for wealth creation over a long period.

Debt is an option where wealth grows in a comparatively stable manner. While investing in these instruments, you also need to consider how much gold you should have in your portfolio. In volatile market conditions, gold lends more stability to the overall portfolio mix. As gold acts as a store of value, it works as a hedge against inflation.

How much gold should I have in my portfolio?

The main question that you as an investor must consider while drawing out your financial plan is - what percentage of your investment should be in gold. Your appetite for taking risks, your existing investments in different asset classes, and overall goal set for investment will decide your gold portfolio allocation.

Many experts opine that an allocation between 5% to 10% is optimal for a balanced portfolio and provides sufficient hedge against investment risks arising due to unpredictable market conditions. Investors can also consider alternatives to buying physical gold. Options like digital gold, Sovereign Gold Bonds (SGB), gold Exchange Traded funds are available for investors who are looking to diversify their portfolio.

How to build a sustainable gold portfolio?

Any form of investing carries some amount of risk, and gold is no different. Gold in the form of jewellery, coins and bars comes with the risk of storge and theft. Often, you also have to incur making charges when buying gold jewellery.

Compared to other asset classes, gold is not considered as an ideal investment instrument for short term. Also, earning any kind of return on your physical gold investment solely depends on the rise and fall of gold price in the market. It does not draw other benefits like dividends or owning a small percentage of a company.

There are a lot of aspects to factor in before you begin your investment journey. There are alternatives to physical gold that offer better liquidity and comparatively better returns (based on your short term or long term goals). Explore your investment options with a financial advisor who can help curate the right gold investment plan based on your financial goals and risk appetite.

Leave a reply