Dhaval Kapadia, Director, Portfolio Specialist, Morningstar Investment Adviser (India) answers queries in The Financial Express, from where the below has been taken.
Should I invest in Gold ETFs to diversify my portfolio?
— Aditya Kumar
Historically, gold has acted as a good hedge against inflation and financial market volatility. For example, from early 2008 to 2011 when equity markets witnessed significant volatility, gold generated an annualised return of 26.8% (over a three-year period).
But, unlike equity and debt, which typically pay out either interest or dividends, gold isn’t an income generating asset.
Further, a long term analysis of the performance of various asset classes indicates that gold underperforms equity.
Over a 25-year period starting 1990, equities have generated an annualised return of 15% vs 10% for gold. Overall, gold acts as a good portfolio diversifier, but due to its performance and income-related characteristics outlined above, allocation may be limited to 5-10% of one’s portfolio.
(Gold ETFs is an acronym for Gold Exchange Traded Funds).
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