BackGold vs Equity: Where should investors invest in this festive season?
Stocks and gold are both significant investments, but they behave differently since equities have a track record of outperforming inflation over the long run while gold works as a buffer against uncertainty and improve portfolio diversity.
PremiumStocks and gold are both significant investments, but they behave differently since equities have a track record of outperforming inflation over the long run while gold works as a buffer against uncertainty and improve portfolio diversity. Stocks selected for investment after careful analysis and consideration of their fundamentals might produce greater returns when it comes to investments, but gold performs best when there is persistent inflation and the rupee weakness versus the dollar. For high-risk/high-return investments, financial advisors typically advise diversification investments across asset classes, but what should investors select between gold and equity?
Gold vs Equity: How do they differ?
Abhishek Dev, Co-Founder & CEO of Epsilon Money Mart Pvt Ltd said “As we are welcoming the biggest festival of India and with the diversity, considering Indian culture celebrating this festival is different fashion. But the one thing that is common in us is whenever there is any festival first thing, we think about spending on gold. Gold as an investment can be related to various factors like individual emotions, attachment to the asset class, conservative risk profile, cultural importance etc."
“But while buying Gold as an investment we tend to forget to take into consideration factors like inflation, correlation with economic growth and liquidity. Gold has sentimental value to it but in times of uncertainty converting it into a liquid asset is a challenge while in equity option we can easily diversify our investment as per our needs," he further added.
“Both Gold and Equity have their own role to play in portfolio Diversification. One must decide the allocation as per their needs, goal tenure and risk-taking capacity. Equities help to beat inflation over longer terms and have generated higher returns, but they come with the risk of market fluctuations due to various factors. One can allocate a certain proportion towards Gold to hedge the equities," said Abhishek Dev.
Performance of gold and equity
Abhishek Dev said “Equity has delivered ~ 11-14% CAGR in the last decade (depending on the index) whereas Gold has delivered the CAGR of ~6%. During this year, the Indian market value erosion of the Indian equity market (Sensex/NIFTY 50) stands at ~-3% as compared to the global figures of around 25% for the S&P 500. On the other hand, Gold has delivered ~11% so far this year. Looking at the current global geopolitical and economic situation coupled with the increasing interest rate has attracted some interest in Gold as an asset class. Gold ETF and physical gold demand have risen by 43% in June 2022 quarter compared to June 2021 quarter."
Where to invest?
“It is suggested to include Gold Mutual Fund, Gold ETF and Sovereign Gold Bonds for portfolio diversification and to average out the portfolio performance in times of economic crisis. Physical gold can be part of personal consumption, but from an investment avenue, one should consider the options mentioned above," said Abhishek Dev.
He further added that “In conclusion, buying gold or equity depends on one’s choice and investment horizon, It is suggested that one should discuss this with their Financial advisor for a better understanding of their asset allocation need."
Nitin Rao, Head Products and Proposition, Epsilon Money Mart said “Recent inflation print spiked to 7.41%, which is also a five-month-high number. Inflation has bearing on investors' investments as it impacts the value of money over time. Equities have been one of the best-performing asset classes over the longer time horizon delivering 10-12% returns. Investors may consider equity investment for maximising their wealth and to beat inflationary pressures. The current volatility in the equity markets can be considered as a good entry point from a long-term investment perspective."
The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.
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