We Indians love GOLD as an asset class and to no surprise, buying GOLD is one of the biggest investment buckets for a lot of Indian households.
Households in India may have piled up around 24,000-25,000 tonnes of gold, remaining the world’s largest holders of the precious metal (Source)
It is definitely interesting to try and understand why GOLD continues to be the preferred vehicle for us Indians to park most of our savings into.
- Store Of Wealth – At its core, GOLD being a precious metal and with relatively finite supply, qualifies it to be a store of value and hence make a good candidate for a long term investment asset class
- Legacy – A lot of this also has to do with legacy. Hoarding & investing in Gold is commonplace because it gets passed on from generations especially our forefathers where precious metals like Gold & Silver were treated as money so there is an inherent bias to continue believing in Gold being a great way to save money
Despite these reasons, I strongly believe that a Gold heavy investment strategy potentially leads to building a sub-optimal investment portfolio; one that doesn’t possibly offer the most returns one could get
There is no doubt that I am a strong proponent of equity investments (be it via Mutual Funds or direct public marketing investing). But over the years, I have realized that globalization coupled with technology advancements has helped me make my investment portfolio even more diverse to exploit more & more high return opportunities
But the proof is in the numbers right. So, lets compare how returns in different asset classes including GOLD stack up
This chart by Stockal paints a clear picture as it pertains to the potential returns offered by different asset classes.
So while GOLD has fared slightly better than investing in Mutual Funds, we don’t live in a world where our choices are limited to two asset classes.
US Equity Market Investing Is The New Frontier
US for what it’s worth still is the global economic powerhouse and it is no surprise than that US equity markets continue to some of the fastest growing markets.
More than that, specific to the US market is the consolidation of some of the higher market cap global technology companies like Google, Netflix, Amazon etc.
Now, why would I not want a piece of Netflix or Amazon stock when I know that these companies are,
- Truly Global so the downside risk is still protected. A company like Netflix might see slow growth in US but then has a market like India to ensure it continues to grow (and keeps the stock price growing as a result)
- These technology companies by the way of their tech enabled business always have room to grow revenues without disproportionately increasing their costs so this always promised a healthy P&L (and that is good for shareholders as well)
The higher returns on US equities clearly disvalidate the hypothesis that GOLD as an asset class is a better store of value and/or delivers superior returns
GOLD is just simpler & easier to understand & buy
This is another argument that is often presented when asked as to why people don’t diversify their investment beyond Gold. A fair one to be honest but then again, with the personal finance seeing so much technology enablement one really doesn’t need to understand technical jargons like PE ratios, cash flow statements etc to make informed choices in the stock market.
In many cases, great investment platforms like Stockal are now removing all the complications and making it extremely simple for anyone to get exposure to US equity markets without having to spends hours/days studying the market.
As long as you understand your risk appetite, Stockal’s latest offering Stacks (What are Stacks) just make it a one-click process for you to add US equity exposure to your investment portfolio for superior returns
For instance, once you sign up for Stockal you can jump into Stacks and just filter for Stacks by your risk appetite. If you are new to equity investing, you could just to invest in ‘Low Risk’ Stacks that will ensure that your investment will be made in instruments that offer lower risk and potentially lower upside.
As you become more comfortable and follow a goal based approach, you could choose to then diversify into different Stacks based on your risk appetite and goals.
For me, I choose ‘Moderate/High Risk’ stacks for my fungible goals like “Vacation” which while I love taking regular vacations I am comfortable with the possibility of not taking if my high risk investments aren’t doing as well. However, for my other goals like “Child’s Education” and “Retirement”, I prefer investing in “Low Risk” Stacks to ensure I focus on capital protection more than capital appreciation
This is what makes Stacks by Stockal a really useful way for me to build my goal based portfolio. Instead of picking individual stocks based on my short & long term goals, I can just choose Stacks and let the team at Stockal do their job in figuring out the right stocks to manage for me
Gold is very near and dear to us Indians and while I am not the one to denounce it over any other asset class, I think it is high time we not only educate ourselves on better investment opportunities out there but also help our elders understand and possibly diversify their GOLD only investment portfolios
