This is a post by Mayank Malik. Mayank writes about money, cars, sports and all things dad-related.
“Money, if it does not bring you happiness, will at least help you be miserable in comfort.” – Helen Gurley Brown
The “golden” rule for a household investor who wants reasonable returns without too much risk is diversification. By diversification, I mean that your money or investments should be allocated to varied instruments like money market funds, bank deposits, equity shares, bonds and debentures, post office savings schemes (India), 401k plan (USA), real estate, gold and a plethora of other options. I will talk in detail on most of these investment options in future posts.
For this post, we will talk about something that is not only a great accessory to your wardrobe but also to your investment portfolio - Gold.
Is Gold Worth Investing In?
Contrary to popular belief except for the last five to seven years, gold has stagnated after a peak in 1980. If you don’t look at the last 5 to 7 years then gold has not yielded very good returns. I have not been a great advocate of investing in gold for this very reason but things have changed now.
In times of an economic crisis like the one in 2008 (not over just yet) gold has become a must-have in your investment portfolio. Investing in gold has been an established technique of preserving value when a national currency is losing its value.
The world economy is more interlinked than you think. The current economic crisis in Greece may have ripple effects not just in Europe but also across the globe. Gold can set new highs if the financial market sentiment is that of economic uncertainty and slow growth like in 2008.
The global economic and geo political situation such as the one in the Middle East will keep oil prices surging and will also keep gold at considerably high levels.
The dollar is weak and getting weaker due to a host of economic and political reasons . If the dollar continues to lose in international worth then this will boost the price of alternative investments, such as gold.
India, Greater China (China and Hong Kong), US, Turkey and Saudi Arabia represented over half of world’s demand for gold. Gold consumption today is higher than it’s worldwide production. Last year gold demand grew by almost 30% .The price will go up with this growing demand.
So, is gold worth investing in? The answer is yes at least in the near short term (5 years) and until some of the economic and geo political situations do not stabilize.
Simple Ways of Investing in Gold
• Gold coins are easily available, come in various denominations, and are perfect for household investors. They closely match the price of gold sometimes with a small premium. Some of the most popular products in the United States include Gold American Eagles, Krugerrands, Maple Leaf among others. In India some of the most popular ones are round, oval and rectangular bars. These are either plain or embossed with images of gods and goddesses and are available at most jewelry shops or banks.
• Jewelry can be used as a form of investment if you prefer not to invest in gold purely as an asset. With jewelry, you can enjoy using gold while it keeps gaining value over a period of time. However, there are disadvantages as well. You have to pay high jewelry making charges.
• Gold ETFs. You can invest in gold by buying Gold Exchange Traded Funds (ETFs). Being ETFs, these funds are listed and traded on the stock exchange. So, you can buy and sell them like any other stock on the stock exchange, on a real- time basis.
• Gold certificates. Historically, the US Treasury issued gold certificates from the Civil War until 1933. Denominated in dollars (any other local currency), the certificates can be exchanged for an equal value of gold. Gold certificates offer investors a method of holding gold without taking physical delivery. Issued by individual banks, they confirm an individual’s ownership while the bank holds the metal on the client’s behalf. You avoid storage and personal security problems while still investing in gold. You can always get the help of a finance advisor to trade in ETF’s and Gold certificates.
Have you invested in gold ? Have more questions? Ask away!
Photo Credit: Giorgio Monteforti