3 min read.Updated: 23 Jul 2020, 03:38 PM ISTRenu Yadav
It is important to have gold in your portfolio to achieve portfolio diversification across asset classes but going overboard may not be the right thing to do.
Tracking gains in the international markets, prices of spot gold in India on Wednesday surged to over ₹50,000 per 10 gram on the Multi Commodity Exchange of India Ltd (MCX). International gold prices hit a nine-year high of $1,857.75 per ounce amid uncertainties due to the spread of covid-19.
The prices of the yellow metal have surged around 28% this year in the rupee terms. This provided some support to the portfolios of those investors who had invested in gold prior to the covid-19-induced equity market crash in March.
Those investors who missed out on the rally in gold prices would be looking for investing in the asset class, while the existing investors may be thinking of increasing their allocation in hopes that the prices may go up further. But should you increase your allocation to the asset after seeing the recent surge in prices?
Some of the experts Mint spoke to recently asked their clients to increase the allocation, slightly. Most of the experts are of the view that one should have some part of their portfolio allocated towards gold, as it is a safe haven asset and is considered a hedge against inflation, but one shouldn’t go overboard. Let’s see how much the experts are asking their clients to hold in gold and why.
Renu Maheshwari, chief executive officer and principal advisor at Finzscholarz Wealth Managers LLP, who had limited the allocation of most of her clients to 5%, has increased it to up to 10% over the past three months, as she believes gold is expected to do well in the coming months. “The reasons for the rise in gold prices are multifold. Gold has corrected enough in six years and is at the right stage for a bull run. All central bankers will resort to printing money at different times and varying quantum. Increased money supply can fuel inflation and appreciation of real assets. While real estate in India is still struggling with legacy problems, we can see gold rising in rupee terms. Depreciation of rupee will also get reflected in gold prices," said Maheshwari.
Lovaii Navlakhi, managing director and CEO, International Money Matters, a financial advisory firm, has also increased the allocation of its clients to gold slightly in March but advised that once the uncertainty related to covid-19 ends, one should bring down the allocation. “Normally, we would recommend 5-7% of one’s net-worth in gold, which we increased to around 10% in March. Once uncertainties end, we will bring down the allocation to that of normal levels and sell gold for our clients rather than buying. The purpose is asset allocation; incidental benefits could be returns," said Navlakhi.
However, some of them are asking their clients to bring down the tactical allocation and move into financial assets. “In my opinion, gold should be a part of the investors’ portfolios and in the Indian context, 10% of total wealth for normal investors can be in gold. This can be increased to 15-20%, tactically. Currently, we have asked our investors to reduce tactical part and move that into financial assets," said Vijai Mantri, co-founder and chief investment strategist, JRL Money, a wealth management company.
Moreover, some of the experts also believe that one shouldn’t increase the allocation to gold seeing the near-term gains and stick to the asset allocation. “Despite rising gold prices, the key is to maintain 10-15% allocation towards gold, because gold has the tendency to remain range-bound for a long time and the long term returns from gold have been marginally higher than inflation. Hence, we do not suggest investors to invest in gold by merely looking at the short-term returns, having gold beyond the suggested allocation can prove counterproductive," said Harshad Chetanwala, co-founder of MyWealthGrowth, a financial planning firm.
So, if you are invested in gold or planning to invest, remember, it is important to have the precious metal in your portfolio to achieve diversification across asset classes but going overboard may not be the right thing to do. Talk to your planner before taking a decision.
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