It’s not glittering and that’s why we like it
Economy bouncing back strongly
With no of daily new covid cases ‘stabilizing’, the economic activity across the country has also resumed. Businesses have become far more adaptive of the new world order. Nomura just released its India Business Resumption Index, which is a measure of various parameters pertaining to economic activity. It tracks mobility data from Google and Apple, labour force participation rate and power demand. The good news is that it is at a record high of 101.2, surpassing Feb 2020 levels. Just to give you a context, it had fallen down to 60.4 in May 2021, when cases and lockdowns were at their peak
During our conversations, we like to talk about themes that aren’t really in the spotlight. So, while New Fund offers (in MFs) and IPOs (stocks ) are the talk of the town ( or WhatsApp groups , in today’s times) , we would like to talk about a completely different asset class : Gold.
No, the Gold jewellery you buy is not an investment
At BuckSpeak, one of the key characteristics of an investment, is that you should be able to buy and sell it dispassionately. Any piece of investment that you make, should be put through this test.
Gold, its place in the sun
We aren’t huge fans of Gold, but we respect it. We are extremely clear on what role it has to play in the portfolio. It’s a HEDGE. Oxford Dictionary defines Hedge as ‘a fence or boundary formed by closely growing bushes or shrubs. I like this definition a lot better than the financial one (a tool to protect yourself against financial loss). So, it’s not the core of the portfolio, but the portfolio gets enhanced and protected due to its presence. Hence it also would be a mistake, if you make this the core of your portfolio. It could be 5-7 % of a mature portfolio.
Why is Gold a Hedge?
All our investments (asset classes) are a function of optimism, gold (for most periods) is a function of pessimism. Equity, Debt, Real Estate and even our own job/businesses fall under the first category. Contrary to what we might think at an individual level, world mostly remains optimistic (I know it’s not an easy sell in today’s time). However, the world would see bouts of pessimism and it is during such periods, that Gold delivers.
Why now?
You know, when it comes to our recommendations, we follow the principle of #ToughConvincing. Gold Funds have corrected 15-16 % (as on 15th Aug 2021), since their last peak in Aug 2020. Making them relatively better priced. We anyway recommend adding gold funds through SIPs / STPs, in a granular fashion, but this would be a good time to add some lump sums as well. But please bear in mind that Gold equally requires your patience, a bit like equity. It can very well deliver negative to low positive returns for long periods (even 5 years). However, we have been able to calibrate our participation in the past at right levels. Though, the last 5-year return for the asset is around 7.2-7.5 % p.a, for our holdings more than 5-year-old, the current CAGR in gold is between 9 % -14 % p.a. So Investor Return > Investment Return
Curating an investment portfolio is like building a sports team, you need players with different (complementary) skills to perform distinct roles. Key is to remember that not all of them would perform at the same time. Alas, you couldn’t win even if you had 11 Sachin Tendulkars(sic) in your team 🙂 .
Do write to us at srivatsa@buckspeak.com if you want to know more about Gold Funds as an investment option .
Disclaimer : The opinions expressed in the Blog are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product. It is only intended to provide education about the financial industry. The views reflected in the commentary are subject to change at any time without notice.Image has been used only for representational purposes. While lot of care has been taken to validate the data , neither BuckSpeak nor any of its employees should be held responsible for its authenticity. Investments are subject to market risk , please engage with professionals to take better investment decisions.
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