GOLD - Its like a seat belt in your car!
How much of gold should you own in your investment portfolio ? Let us try and find a logical answer.
What is the purpose of investing ? Growing wealth - right ?
Gold does not have a cash flow. It is neither a consumable material like industrial commodities or food grains.It has a perceived value which comes from it's rarity and limitation of supply. As such gold does not qualify as an investment. It only retains value over time. It is this quality which gives it a place in your portfolio.
Your investments can create havoc at times, just look at the present scenario.Portfolio values can dip to discomforting levels.If you are anticipating trouble carry some gold in your portfolio. Gold tends to move up during crisis. When stocks and bonds dip, gold helps you to stay above. It gives the necessary liquidity in case situation demands. Presence of gold minimises our losses.
Gold is the seat belt in your car. Useless 99.99% of times. Its weight is a drag on the performance of the car. So carry a seat belt light in weight. Never the less you need a seat belt. In times of crisis when everything fails, this seat belt saves your life.
Gold is the life boat on your ship called investment pot. Have a small proportion of Gold in your portfolio.
Younger people with long time horizon can carry about 5% of value of investments as gold. As you grow older increase proportion. By about 50 years of your life, you may have about 10%. Once you are retired, it is better to hold a proportion of 15% - 20% as gold in your kitty to smoothen out vagaries of investment performance.
Higher proportion of Gold drags down your investment performance. Gold cannot be a substitute to Equities, Debt or Real Estate properties. All these except Gold will create wealth for you over time. Gold only gives stability.
Don't get over impressed with performance of Gold in last ten years. Remember, Gold did not move much in two decades prior to that. Between 1980 to 2000 gold slept a like a tortoise and moved like a snail. It is after 2001 that it started to hop like a hare and gallop like an horse.
Now it has moved a lot, covered a lot of lost ground of value. It is unlikely to move with a brisk pace from here on and may take a breather like the way it did between 1980 to 2000.
You need to be careful with gold too. Resist your temptation to over indulge.