Shocking Data on Stock Performance vs. Gold
Recently, an interesting statistic was shared by Nikhil Kamat, based on data from DSP Bloomberg. It reveals that only 43% of Indian stocks have been able to outperform gold over the last 24 years. This number drops to just 29% in China and an even lower 11% in the US. These figures challenge the common belief that equity markets always generate superior returns. In several major economies like Japan, Brazil, the UK, and France, gold has consistently delivered better returns than stocks, highlighting its strength as an asset class.
Gold’s Strong CAGR Across Global Markets
Looking at historical returns, Japan’s equity market delivered a 4.6% CAGR, while gold provided 11.3%. In Brazil, equities performed at 8.2%, whereas gold outperformed at 14.6%. A similar trend can be seen in the UK, where equities generated 4.3% CAGR compared to gold’s 10.6%. Even in developed markets like the US, equities delivered an 8.7% CAGR, while gold managed 9.4%. The only country where equity has marginally outperformed gold is India, where gold returns have been slightly lower but still highly competitive. This data is a clear indication that gold is not a weak investment; rather, it has shown resilience across different market cycles.
Gold as a Hedge During Market Crashes
Another important insight from this data is that every time the Indian stock market has seen a sharp decline of more than 20%, gold has gained between 10% and 30%. This proves that gold acts as an excellent counterbalance in a portfolio. While equity investments tend to be volatile, gold provides stability, making it a crucial asset for risk management. It offers the dual benefit of delivering strong long-term returns while also acting as a hedge during economic downturns.
How Much Gold Should You Hold?
Many analysts and fund managers recommend a very small allocation to gold—often 1% to 2%. However, this may not be enough to make a meaningful difference in a portfolio. If 98% of your portfolio falls by 50% while gold rises by 50%, the impact of a 2% allocation would be negligible. A more realistic allocation might be 5%, 10%, or even 20% depending on an investor’s risk tolerance. Those who already hold 10% in gold may consider increasing it to 20%, while those at 20% could consider moving towards 30% for better portfolio diversification.
Looking Ahead: Gold and Equity Can Coexist
No one can predict whether equities or gold will perform better over the next 25 years. Perhaps equities will dominate, or maybe gold will continue to shine. It is also possible that both asset classes will perform well together. What is certain is that maintaining some allocation to gold can improve portfolio stability and long-term wealth preservation. Ignoring gold completely could be a missed opportunity, especially given its historical performance.
WeekendInvesting launches – Portfolio Momentum Report
Momentum Score: See what percentage of your portfolio is in high vs. low momentum stocks, giving you a snapshot of its performance and health.
Weightage Skew: Discover if certain stocks are dominating your portfolio, affecting its performance and risk balance.
Why it matters
Weak momentum stocks can limit your gains, while high momentum stocks improve capital allocation, enhancing your chances of superior performance.
Disclaimers and disclosures : https://tinyurl.com/2763eyaz
