Every Indian household eventually asks where its savings should go. Gold is usually among the first answers, and many people check todays gold rate regularly to see how their holdings are faring. Residents of Tamil Nadu’s capital often compare the gold rate today Chennai trading circles report with returns from deposits, mutual funds and property. No single option wins in every situation, and the smartest families blend several. This article compares gold with other popular choices so you can decide how much space it deserves in your own plan.
The Strengths of Gold
Gold as a Store of Value
Gold has seen better days in the marketplace, but it has maintained its value despite booms and busts, inflation and downfalls. It’s easy to identify, is mostly accepted worldwide, and is readily sold in any city. Its price sometimes moves in the opposite direction to that of shares, helping to offset losses in case of a market crash.
Gold has a cultural and sentimental value apart from being a simple ornament or store of value. It has the virtue of being passed on as heirloom property from one generation to another. There is no other form of savings which offers such a dual advantage.
How Gold Falls Short
Gold as an investment is flawed in many ways, the major one being that it does not give regular income. While a fixed deposit in a bank or a rental house will start paying you regular interest or rent, gold will just sit in your cupboard until you sell it. The price of gold can also stagnate for long periods of time, frustrating those looking to make a profit.
Apart from the fact that it has to be sold to make money, there is the aspect of making charges, wastage and storage in case of jewellery. As far as building wealth goes, gold ornaments should be the last choice for making investments.
Comparing With Fixed Deposits
Fixed deposits with banks offer a steady rate of interest, and the principal amount is safe. It is a suitable option when it comes to saving for short-term targets and for maintaining an emergency fund. The interest earned on such deposits is taxable and may not help much when it comes to beating inflation. In this context, gold can act as a hedge against inflation, though its yield is erratic and hard to predict.
A balanced approach is to use bank deposits as a secure way of keeping emergency funds and using some gold as a hedge against inflation.
Comparing With Equity and Mutual Funds
Equity and mutual funds have a long term track record of beating inflation, but the returns can be very volatile. The share market fluctuates a lot and the investor needs to have a long term view while investing in these. Most investors have the option of a systematic purchase of mutual funds. Gold, on the other hand, is a good short term hedge against market fluctuations and can help reduce overall volatility of an equity-based portfolio. Gold funds are preferred by many in the systematic purchase scheme.
Comparing With Real Estate
Real estate is a very lucrative, long term investment option, but it is very illiquid. Rental income from property, if any, is meagre and has to be supplemented from other sources. There are several other expenses like maintenance, tax and so on. It may take a long time for the property to fetch you any returns. Gold can be resold quickly and is more liquid. It is a good alternative to real estate for the common man, who cannot afford to tie up huge sums in a property.
Building a Balanced Mix
There is no magic formula for the perfect mix of gold and other investment avenues as far as one’s total savings are concerned. It will vary from person to person depending on his age, financial position and attitude towards risk taking. Some people may prefer bank deposits while others may take to equity. Gold generally fits in as a stabilizer when it comes to balancing out investment portfolios.
It is a good idea to rework out the ratio of gold to other investments after a year and balance it out, if required. It is important not to invest all one’s savings in any one avenue, no matter how tempting it may be.
The Final Word
Gold is neither a wonder material nor a sure loser. It can fit into one’s financial planning as a stabilizer and help preserve one’s wealth. It can supplement savings in other avenues, let one hedge against inflation and let one save for long term goals. It helps maintain a balanced portfolio and, in the process, balance out one’s family finances for a secure future.
