You hold two asset classes in your portfolio (say equity and fixed income). Now, you are tempted to hold another asset class (say gold, at the right or wrong time; it does not matter).
Every choice comes with its consequences and responsibility. Once you have a 3rd asset class, the risk in the portfolio can increase (if it is gold, equity or RE) or decrease (if it is fixed income. Is this change in the risk profile of your investments right for your needs?
No one (literally no one) bothers to ask or find out. No one realises this requires regular risk management (rebalancing). Those who buy stuff only by looking at how brightly it shines never consider the cost of acquisition – more labour and time.
There are two standard responses to these, and none are close to being right or bright. 1) I will adjust my investments to maintain asset allocation. This is impractical talk equivalent to “even if the market crashes 50%, I will continue to hold.” See: Can I rebalance my portfolio by adjusting my SIP amounts?
2) “I will buy multi-asset funds. So I do not have to rebalance”. This is silly because the overall risk level of such a fund will differ from your goal, and most people who buy shiny stuff never stop with just “one” fund. See (for a similar argument): Can we use Balanced Advantage Funds as a one-fund portfolio and save on rebalancing tax?
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The answers to “What should I buy?” and “When should I buy?” lie within us. We need to do things that are suitable for our needs. Shopping for shiny objects is the opposite of that. All it will bring is clutter and momentary joy.
So, you don’t need gold in your portfolio. Even if you have a small exposure, it will not be enough to cover equity market crashes. See: Can I add 10-20% gold to my 15-year investment portfolio? And, How much gold in my portfolio will protect against a market crash?
If you have larger exposure, you risk not achieving the return necessary for your goals. Please keep it simple and stick with equity and fixed income.
Most investors have no idea how to manage a portfolio with just two asset classes, let alone three. So please don’t clutter up your portfolio, and stay away from gold.
Our gold archive
- Five facts to know about gold before investing!
- How INR to USD exchange rate affect gold prices
- Gold is as risky as equity and not a debt instrument!
- Are investors buying Sovereign Gold Bonds for the wrong reasons?
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