For many Indians, this year's Diwali festivities ended a bit abruptly.
Just as they were celebrating their
favourite asset class--Gold’s record-breaking performance, out of the blue,
gold prices fell sharply.
Indians’ affinity for gold is no secret, thanks to both cultural and religious reasons. Globally, we rank among the largest consumers of gold. To the delight of many, gold has had a dream run over the last year or so.
The average Gold ETF appreciated by roughly 48% over 1-Yr, versus a 6% gain posted by the typical Large-Cap Fund. As if on cue, gold prices peaked around Diwali, and then came a downturn.
Expert Speak
As gold prices surged over the last year, experts stated that everything from geopolitical tensions, economic uncertainty, inflationary fears, to central bank actions were responsible. And perhaps they indeed were.
Interestingly, not much has changed on ground. Yet gold prices have nose-dived from their peak, and how.
Then again, a year ago, none of the experts decisively predicted that gold would be on a tear, and equities would struggle. Likewise, no one saw the recent downturn either.
Perhaps it isn’t possible to foresee such events, despite what much-vaunted experts would like us to believe. Therein lies a lesson for investors who have a penchant for seeking out 'guru wisdom'.
Basics Are Forever
For retail investors who are trying to figure out 'what's next' on the gold front, the answer (as is often the case), could well lie in the basics of investing.
🟦 To begin with, it makes sense to invest in gold from a diversification perspective. Hence, alongside, asset classes such as equities and fixed income, gold should also find place in your portfolio.
🟦 Next, decide on how much you should allocate to gold. Broadly speaking 5%-10% is deemed a reasonable range. But, investing is a personalised activity. Hence, determine an apt allocation based on your existing portfolio and investment goals.
🟦 Finally, it is likely that recent price changes have
resulted in gold occupying a different weight, versus what you have determined
as the ideal allocation.
If that is the case, tweak your gold investments to revert to the desired allocation.
Some may point that that this approach is a bit simplistic and basic. Indeed, it is! While investing, keeping things simple, is the key!
Unless you fancy yourself as a commodity trader or guru, you have no business trying to predict the next peak or trough. As an investor, you should be focused on meeting your investment goals rather than predicting the future.
Resist the urge to act on every exciting headline in business dailies and television channels, it will serve you well over the long-haul.
#Gold, #AssetAllocation, #Investing,
#Experts
