The financial industry will have to offer an answer for this one: Investors would have been far better off buying gold rather than shares over the past five years.
The compound annual growth rate (CAGR) of domestic gold prices in the past five years is 20.86%. The CAGR for the Bombay Stock Exchange’s Sensex is 8.61%.
True, these values reflect the fact that shares are in the midst of a bear phase while gold has had a, well, golden run in our crisis-ridden world. But it is also true that the outperformance of gold flies in the face of the rather lazy assumptions that equities are always the best bet in the long run.
It is unfortunate that Indian investors have been offered just one sort of diversification advice from financial analysts, brokers and mutual funds— buy a basket of stocks.
True, diversification should be across different asset classes, including precious metals. Gold also works as a hedge against a weak rupee.
This is something that ordinary Indians instinctively understand, but the financial industry does not.