Why Gold is a Must ?

Gold has been an undervalued asset class for many decades. Despite its potential benefits, many people overlook it in favor of equities or other asset classes. However, gold is an asset that deserves serious consideration for your portfolio. It acts as insurance against various financial uncertainties, providing a safety net that other assets cannot offer.

Why You Need Insurance

We buy insurance for our cars, homes, and health to protect ourselves from unforeseen events. We are willing to pay a small amount today to safeguard against potential future losses. However, when it comes to our investment portfolios, we often neglect to take similar precautions. Your portfolio is likely one of your most valuable assets, and it needs protection too. Gold can provide that protection, helping to stabilize your investments and reduce volatility, especially as you grow older and need more financial security.

Gold’s Performance During Market Downturns

Gold has consistently performed well during years when equities have struggled. In challenging years like 2008, 2015, 2018, and 2020, gold has shown strong returns in INR terms. This makes gold a reliable partner for your portfolio, offering stability when other investments are volatile. It acts as a counterbalance, providing a safety net during market downturns and helping to preserve your wealth.

Protection Against Currency Fluctuations

Another key benefit of gold is its ability to protect your international purchasing power. If the value of the Indian rupee were to drop significantly, gold would help safeguard your wealth. Gold is priced globally, so its value is not tied to the INR. This makes it an ideal asset for protecting against currency risks and maintaining your purchasing power on an international scale.

Long-Term Performance of Gold

Over the past 24 years, gold has delivered an annual return of 11.8% in INR terms. Even over a longer period of 50 years, the returns have been consistent at around 11.7-11.8%. This performance is not unique to India. In Japan, where interest rates are near zero, gold has provided returns of nearly 11%. Similarly, in China, gold has yielded 8.3% in local currency terms. In the US, gold has delivered a CAGR of 8-9% over the last 20 years, even when real interest rates turned negative. These consistent returns make gold a valuable addition to any portfolio.

Comparing gold’s performance to equities, we see that it holds its own. For example, the S&P 500 has returned around 10% over the last 20 years, while the Nifty 50 has yielded 12-13%. Gold, while slightly lower, offers the added benefit of being a hedge and insurance for your portfolio. This dual role makes gold invaluable, especially during times of economic uncertainty or market volatility.

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