Stocks and gold are both important investments, but they behave differently as equities have a track record of outperforming inflation over the long run, while gold acts as a buffer against uncertainty and improves portfolio diversification. . When it comes to investments, after careful analysis and consideration of their fundamentals, the stocks chosen for investment may give higher returns, but when there is persistent inflation and the rupee depreciates against the dollar, gold performs the best. does. For high-risk/high-return investments, financial advisors usually recommend diversifying investments across asset classes, but what should investors choose between gold and equities?
Gold vs Equity: How do they differ?
Abhishek Dev, Co-Founder & CEO, Epsilon Money Mart Pvt Ltd said, “As we welcome India’s biggest festival and with diversity, it is a different fashion to celebrate this festival looking at Indian culture. But one thing which we have in common is that whenever there is a festival, the first thing we think about is spending on gold. Gold as an investment can be related to various factors like personal sentiments, attachment to asset class, conservative risk profile, cultural significance etc.
“But while buying gold as an investment, we forget to take into account factors like inflation, correlation with economic growth and liquidity. Gold has sentimental value but in times of uncertainty turning it into a liquid asset is a challenge, whereas in equity options we can easily diversify our investments as per our needs.”
“Both gold and equities have their own role in portfolio diversification. Allocation should be decided according to your needs, target tenure and risk appetite. Equities help beat inflation over the long term and generate higher returns, but they also come with the risk of market volatility due to various factors. A certain proportion can be allocated for gold to hedge equities,” said Abhishek Dev.
Gold and Equity Performance
Abhishek Dev said, “Equity has given a CAGR of ~11-14% over the past decade (index basis), while gold has given a CAGR of ~6%. During this year, the Indian equity market (Sensex/NIFTY) 50) has an Indian market value erosion of ~-3%, as compared to the S&P 500’s global figures of around 25%. Gold, on the other hand, has lost ~11 percent so far this year considering the current global geopolitical and economic situation. Gold as an asset class with rising interest rates has attracted some interest. Demand for Gold ETFs and physical gold grew by 43% in the June 2022 quarter as compared to the June 2021 quarter.”
Where to invest?
“It has been suggested to include Gold Mutual Funds, Gold ETFs and Sovereign Gold Bonds for portfolio diversification and to average the performance of the portfolio in times of economic crisis. Physical gold may be part of personal consumption, but from the way of investment, one should consider the options mentioned above,” said Abhishek Dev.
He further added that “In conclusion, whether buying gold or equity depends on one’s preference and investment horizon, it is suggested that one should discuss this with their financial advisor for a better understanding of their asset allocation. “
Nitin Rao, flagship product and proposition, Epsilon Money Mart, said, “The recent inflation print rose to 7.41%, which is also a five-month high. Inflation has an impact on investors’ investments as it affects the value of money over time. Equity has been one of the best performing asset classes over a long period, giving 10-12% returns. Investors may consider equity investments to maximize their wealth and offset inflationary pressures. The current volatility in the equity markets can be considered as a good entry point from a long-term investment perspective.”
The views and recommendations given above are those of individual analysts or broking companies and not of Mint.
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