100% Gold portfolio

Personal finance
1

What are the drawbacks/benefits of a 100% gold portfolio. Any and all opinions are welcome.

2

A brief comparison of returns, before getting into the pros and cons.

Both Gold and the Sensex have witnessed remarkable journeys over the decades. As returns indicate, over a 20-year period, gold has surged by 1150%, while the Sensex has seen a 1250% increase

So if someone had held a 100% Gold portfolio for the past 2 decades they would have still made a return that is somewhat on par with or slightly ahead of the benchmark equity returns, especially when considering the risk-return tradeoff of the 2 asset classes.

But as the axiom goes, past performance doesn’t always guarantee future return.

CONS:

Non diversification

Requires long term holding to generate returns equivalent to equity

Less contribution to the Indian economy and its growth (as most of the gold is imported)

No concept of multibagger returns

PROS:

Better risk-return ratio

Low volatility

Non- renewable (in future when there is scarcity, demand will outpace the supply)

3

What are the drawbacks/benefits of a just having FDs as an investment instrument.

4

Here is the answer in a nutshell:

Benefits of Fixed Deposits:

  1. Safety: Low risk with guaranteed returns.
  2. Stability: Fixed interest rates, unaffected by market fluctuations.
  3. Liquidity: Easy to withdraw with minimal penalty.
  4. Regular Income: Provides predictable interest income.

Drawbacks of Fixed Deposits:

  1. Lower Returns: Generally offer lower returns compared to other investment options.
  2. Inflation Risk: Returns may not keep pace with inflation.
  3. Taxation: Interest earned is taxable.
  4. Limited Growth: No capital appreciation potential like stocks or mutual funds.
5

Gold as a commodity does not generate any returns. Gold is treated as a hedge against inflation and for Indians against currency depreciation as against USD

6

So if i bought gold at 40000 and sold at 70000, then i havent generated any returns?.

7

In addition to what was mentioned by others.

When you book a FD with a specific rate, this remains fixed for the tenor of the FD even if the market rate drops. On the other hand if the rate increases, you can close the FD and reopen the same at the higher rate. There could be a penalty and you need to check if closure and reopen is viable.

For non residents, thought, you cannot close the FD within one year. If you do, no interest is payable.

With regard to taxation and if your income is within the slab where you dont need to pay tax, you can always sign 15G form and TDS will not be deducted.

You get OD limit against FDs. Obviously the OD rate will be higher than the FD rate. You could use this funds only in case of emergency. Interest is charged only on the portion you draw. A great and flexible product if used rationally.

Guarantee by DICGC upto 5 Lakh.

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8

One can say all day that investing in stocks is owning a part of business but unless you have some controlling stake in the company the only way you can make money through investing in equities is buying low and selling higher and that is same as gold there is not much difference in my eyes.

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9

What I meant was as a product, this does not generate any returns by itself.

What Drives Fluctuations in Gold Prices?
Although the metal has proven its capacity to maintain its value over time, the price of gold is often volatile over the short term. There are many factors that influence the price of the metal. Because gold is generally dollar-denominated, a stronger U.S. dollar tends to drive gold prices lower, and vice versa. Real and expected inflation rates also affect the price of the metal. Gold purchases by central banks have an impact on the price, as does demand for gold to be used in jewelry and technological devices.
as an example, when I invest in equity of TCS. There is a company which produces something which generates income…

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10

Gold gave 9-11% cagr over 5 years. If that’s ok for you may opt it. FDs almost 7% without much helping inflation. Gold prices are volatile so as stocks. But stocks give higher returns at similar volatility.

11
  • if invested in SGB the final maturity amount will be tax free + 2.5% interest per annum
    So i think SGB is somewhat better than nifty index fund, because of these
1 Like
12

I would think Gold as currency, additionality it is internationally accepted.

This was true in ancient times when humans moved from bartering to coin (cash) based economy. This is true even today when governments think print currency at will or they ban certain denominations when they think its right thing to do.

Question is how much currency one would like to keep as liquid cash and what he/she thinks advantages, disadvantages of having 100% liquid cash (somewhat inflation proof) in portfolio…

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13

Pros:

  • Gold has come from space , so its in limited quantity. It’s not produced in earth like some other metals. So it will always appreciate in value.

Cons:

  • Not enough diversification. never put everything in one basket.