What should be the allocation to gold ETFs? They are not performing well for the last three-four months and are giving negative returns.
- Siddharth Modi
We don't usually have a very favourable view of gold as an asset class for wealth creation. If we look back at longer time periods of 12-15 years, gold has had its share of rallies. But over such long investment horizons, equity has turned out to be a much better option for creating wealth.
Having said that, gold has proven its worth as a store of wealth and value. We did a recent study and found that at any time when the equity market is not doing well, gold performs well. So it acts as a good hedge to your equity portfolio. So if you want to really put your money in gold, then more than wealth creation, look at it as a protector of the downside when the equity market is in panic mode.
In the recent study that we did, we found that over the last 20 years, an investor who would have maintained an all-equity portfolio vs an investor who would have maintained a portfolio with 20 per cent allocation to gold and 80 per cent allocation to equity, both of these investors would have generated somewhat similar returns. But the person having 20 per cent gold in his portfolio would have witnessed relatively less volatility through these 20 years.
Thus, look at gold as a hedge to your equity investments but not really as a wealth creator in your portfolio.