Here are few charts based on a systematic investment in gold. I did this primarily to satisfy my curiosity after a similar study with S & P 500 and Nifty: Buying “low” vs Buying “systematically: Surprise, Surprise!
Regular readers may be well aware of my stand on gold: that it is riskier than Stocks! I had also suggested understanding risks is crucial before buying bonds: Sovereign gold bonds: What you need to know before buying
In a nutshell, it is as rewarding as fixed income “over the long term” and as risky as equity over any term. And a huge component of this risk arises from current fluctuations: Gold Price Movement: USD vs INR.
Similar to the previous study, we will consider three types of SIPs:
1 Normal SIPs where one troy ounce (31.1 gm) is purchased each month on the first business day of each month.
2 Buy low-SIPs, purchases made only when the gold price is lower than its 10-month moving average. If there is a delay for a few months in investing, the entire backlog is invested during the month in which the price fell below the 10-month average.
3 Buy high-SIPs purchases made only when the gold price is higher than its 10-month moving average.
Eight Year Periods
Notice the huge spread in normal SIP returns, plotted against the price (per troy ounce =31.1 gm) movement. Many naively believe by looking at the price movement that “gold will always go up” as though it is a fixed income instrument!
For each of those blue dots, here is how the corpus obtained via the three SIPs modes compared.
Unfortunately, this is not quite perceptive. Out of the 351 8-year periods considered, the normal SIP resulted in a higher corpus 74% times more than the low-SIP and the high-SIP produced a better corpus 62% times more than the low-SIP!!
Fifteen year periods
The normal SIP did better than low-SIP 74% of the 266 15-year periods considered. Similarly, the high-SIP produced a higher corpus, 61% of the periods considered than the low-SIP.
Twenty year periods
In this case, 207 20-year periods were considered and 84% of those periods, the normal SIP delivered a better corpus than the low-SIP. Similarly, the high-SIP did better than low-SIP 64% of the periods.
I cannot but be amused at these percentages! As mentioned before, I did this out of curiosity to check if trend following helps a gold SIP. Here again the results as similar to the previous study: Buying low vs Buying Systematically: Surprise, Surprise!
If you are considering a systematic exposure to gold, I strongly suggest that you differentiate between when to invest in gold and when to buy it and recognise how volatile gold is before investing in its price movement.
If you aim is to plan for your child’s wedding, do consult this: Smart ways to accumulate gold for a marriage.
Chennai DIY Investor Workshop Jan 29th, 2017
The fifth Chennai DIY investor workshop will be held on Jan 29th, 2017. Ashal Jauhari and I shall be the speakers. Read more and register for the event.
Our new book, You Can Be Rich Too With Goal-Based Investing is now available with a (total)discount of ~ 30% (Rs. 280) at Infibeam if you use the discount code BS10.
What Readers Say about You Can be Rich Too
You Can be Rich Too With Goal-Based Investing is my new book with Subra(money.com) published by CNBC TV 18.
For anyone who wishes to take control of his/her finance this book is a must read. Very simply put, even an amateur in finance will be able to understand and implement. The author genuinely attempts to inculcate the habit of investing among the people who have the ability to invest but refrain from doing it, either due to lack of time , interest or understanding!. The message from the book is ” Investment done without setting a goal/ objective is like leaving for a trip without knowing the destination, not everytime the end result will be promising. Hence, it’s important to invest in a planned & disciplined manner.” A read is highly recommended
Also at, Google Play Store (Rs. 244.30)
If you have read the book, please consider writing a review this weekend.
Subscribe and join the freefincal Youtube community!
Connect with us on social media
- Twitter @freefincal
- Subscribe to our Youtube Videos
- Posts feed via: Feedburner
- We are also on Google PlusandPinterest
Do check out my books
Get it now. It is also available in Kindle format.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You WantMy second book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at low cost! Get it or gift it to a youngearner
The ultimate guide to travel by Pranav SuryaThis is a deep dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step. Get the pdf for ₹199 (instant download)
Free Apps for your Android PhoneAll calculators from our book, “You can be Rich Too” are now available on Google Play!
Install Financial Freedom App! (Google Play Store)
Install Freefincal Retirement Planner App! (Google Play Store)
Find out if you have enough to say "FU" to your employer (Google Play Store)