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5 Reasons to add Gold to your Investment Portfolio

March 29, 2022 / 12:39 PM IST

Every investment portfolio needs a strategic diversifier that can help preserve value during downturns, and provide consistent growth. While equities and bonds help investors take advantage of market trends, a strategic asset gives an investment portfolio long term stability. And few commodities can serve this role better than gold, which was once the world's primary unit of exchange.

Here are 5 reasons why every investor should add gold to their investment portfolios.

1. Gold is a great store of value

The demand for Gold always outstrips the supply, making it a great store of value. For example, while the investment-led demand for gold has risen by an average of 10% over the last 20 years, the supply growth has averaged 1.6% over the same timeframe. This contributes to stable prices for Gold over the long term.

2. Gold is virtually indestructible

Gold doesn't degrade over time. That's why gold holdings tend to retain their value over a long time, irrespective of market trends and external influences, which gives an investment portfolio stability.

3. Gold is ESG compliant

Unlike many other asset classes that might fall prey to ESG regulations, gold is an ESG compliant asset, as long as it can be proved to be responsibly sourced. This is an advantage for investors, looking to align their investment strategies with rapidly evolving ESG norms.

4. Stability during market downturns

Statistical analyses have shown that gold displays increased negative correlation with equities during extreme market downturns. It's a quality that has much to do with gold’s stable asset value, which acts as a safe haven for investors during sustained bear runs.

5. Availability of a variety of gold-based investment products

For new age investors, there are numerous avenues to invest in gold. Gold ETFs have emerged as a viable option for investors, which allow them to buy and sell gold-based assets like ordinary stocks. Digital gold offers even greater flexibility, allowing investors to invest as a little as Re.1.

Uncertainties around political and economic conditions in 2022 further strengthen the case for adding gold to an investment portfolio. Moreover, studies have proven that the addition of just 5% - 10% gold assets can substantially improve the risk-adjusted returns on an investment portfolio. Truly, what more could an investor ask for?

Moneycontrol journalists were not involved in the creation of the article

first published: Mar 29, 2022 12:32 pm