Choosing Between Gold and Equity: A Smart Investor’s Dilemma

Posted By: Blog

Author - Finsherpa

Do you know what's been on everyone's mind lately? Which is a smarter investment - Gold or the stock market? It's a tough call, especially with both of them gaining a lot of attention these days. Let me break it down for you. Throughout history, we've always turned to gold for special occasions. It's a precious metal that's been passed down from one generation to the next.

Our grandma's gold jewelry holds a special place in our hearts. It was passed down to our parents and will eventually be passed on to us. Besides its monetary value, it carries a lot of sentimental value. The reason our ancestors considered gold as a valuable investment is because it has always retained its worth.

Compounded Annual Growth Rate (CAGR) Of Gold and Nifty - Finsherpa

Over time, the value of gold increased in line with inflation, making it a stable asset for individuals to invest in. It provided a sense of security, especially during times of financial hardship when gold could be easily liquidated for cash to overcome difficulties. As a result, gold investments have been a trusted strategy passed down through generations in our families.

However, in the last couple of decades, a new player has emerged in the financial world. It's called the equity market or the stock market, comprising shares, mutual funds, and the nifty index. These innovative investment options have been driving investors' wealth to new heights. It's remarkable to witness how a 20-year investment in a mutual fund or the nifty 50 can yield significantly higher returns for investors.

Check out the video link for a more in-depth understanding 

What Is Stock Market Investing?

Stock market investing involves becoming a shareholder in a company, making you a partial owner. If the company is excelling, expanding, and meeting customer needs, you benefit in two ways. Firstly, you receive a yearly dividend income from the company or mutual fund.

Choosing Between Gold and Equity A Smart Investor’s Dilemma What is Stock Market Investing - Finsherpa

Additionally, when the stock value increases over time, you can also benefit from a decent capital appreciation on your investment. Therefore, investing in the stock market, especially in strong portfolios held for some time, has proven to be highly profitable for individuals. Moreover, over the past two decades, stock markets have closely reflected India's economic journey.

Should One Invest All The Money In The Stock Market

Many individuals have successfully built up a nice sum by investing in stocks or mutual funds. However, the burning question is - should you go all in and invest all your savings in the stock market? Recent statistics suggest otherwise. In the past five years, gold has outperformed the stock market in terms of returns. Surprising, right?

Why Does Gold Have High Returns?

1. Gold Gives High Safety Even During Economic Breakdowns

Have you noticed that the stock market usually provides decent returns in the long run? However, in the past five years, gold has outperformed it. It's quite interesting, isn't it? Particularly in the last couple of years, especially since the COVID pandemic hit, gold experienced a significant surge. When all else fails, people seek the reassurance of safety and security, and gold becomes their go-to asset.

2. During Geopolitical Uncertainty, People Want To Choose Gold Over Risky Assets

After COVID-19, there have been a couple of conflicts like the Ukraine-Russia war and the ongoing Middle East war, which have left many uneasy. In addition to investing in equity markets, people seek security by turning to gold.

Did you know that countries worldwide are gradually investing more in gold? It's quite fascinating. And who's leading the pack? China! They hold the largest amount of US securities and word on the street is that they've been buying up loads of gold, replacing their US dollar reserves. It's no wonder gold's value has been on the rise!

Should one sell all the equities and go to gold? The answer again is no. In my opinion, the economic activity, especially in India, is set to remain robust. That's why we suggest having a diversified portfolio, which is where you'll reap the greatest rewards. Allocating a certain amount of money to gold acts as a safeguard against market fluctuations, while investing a larger portion in equity markets allows you to capitalize on the country's economic growth.

Check out the video link for a more in-depth understanding 

How Should You Invest In Gold?

I'm confident that over the next five or ten years, the country's economy will experience solid growth, which will be quite beneficial for those who choose to invest in long-term equity. Now, as an investor, the question that naturally arises is how should I invest in gold and where should I put my money? Well, there are products out there that offer a combination of both options. You might want to explore mutual funds, specifically multi-asset funds, as they could be a suitable choice.

Multi-Asset Fund

These multi-asset funds are like a triple ice cream sundae. They divide their money equally between equity, gold, and fixed-income products like FD. This means you get the benefits of three different investments in one fund, which is an advantage. However, if you prefer, you can also consider standalone gold products such as gold ETFs or Gold mutual funds. These options allow you to buy them in the stock market and they will track the returns of gold over time.

Sure, you have the option to invest in equity mutual funds individually or as a portfolio to diversify. There are multiple ways to achieve the goal of having a portfolio with a balanced combination of equity and gold. However, the key is to have a mix of both, rather than choosing one over the other.

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