Why Gold Should Be a Steady Part of Your Investment Portfolio

Discussions on investment have changed lately with gold dominating conversations on social media, articles, videos, and even financial websites. Current and prospective investors can't help but notice the proceeds from gold investments over the years and are being attracted to gold for good reasons.

Some people are continually watching gold-prices rise while not having investments in gold. This sensation of FOMO (fear of missing out) can leave some people feeling anxious.

Many advisors and fund managers claim to have recommended gold as an investment option for years. In an unpredictable world, the foremost reason being that gold tends to perform well during volatile financial and geopolitical situations.

We can all see that over and over again, there are unpredictable variables existing within our environment. We need to accept that this is not the first time such scenarios are taking place and it will not be the last. Unfortunately, a lot of people try to use gold as leverage to help them make decisions regarding their portfolios rather than using gold to reduce the risks of the portfolio.

People need to modify their mindset and think about it logically instead of emotionally. It's always about portfolio diversification rather than focusing on profit-making.

Funding options

Investing in gold has become easier over the years, especially with the introduction of Sovereign Gold Bonds (SGBs) that offer additional interest on top of growth in gold prices. Not to forget, the interest earned is tax free if SGBs are held until maturity.

With no new SGB Series available for subscription, and redemption of existing bonds becoming a likelihood after 5 years, one would wonder as to how and where to invest now. It would be roaming in the clouded skies, without an option to plan for an investment holder. SGBs are now available for trading on exchanges and can be fetched through the secondary market.

Another option for investing in gold could be Gold ETFs. Gold ETFs have the ease of not worrying about storing it or maintaining its purity all the while tracking domestic gold prices. It also provides the ease of liquidity since it can be sold anytime. Gold Savings Funds offered by mutual funds also provide an option for those not in possession of a demat account.

The right allocation

These represent some of the ways of investing in gold, but having an allocation in the precious metal is useful over the long term. As with other assets gold has the unique feature that it tends to retain its value in times of depressed currencies all around the world. An investor can consider a 10-15 percent allocation in gold, and one way to achieve this is to slowly increase it while decreasing investments in other asset classes.

An investor should aim to sustain the allocation for the targeted time frame and not become overly enthusiastic or drawn in by the returns from gold which may lead to an overinvestment. Likewise, the opposite extreme when everything else is doing well and an investor needs to trim down his or her allocation to gold.