Gold v/s Index Investing
Before start, see the below picture
Here, I’ve take data from Google finance from April, 2015 to March, 2022. Gold represents “GOLDBEES” symbol in NSE, Index is represents “NIFTYBEES” symbol in NSE. Index here I take Nifty50. As generally we can see that there is negative relation between Gold and Index from the above picture. If you have invested 1,00,000 INR in Gold in April 2015 it’s worth in March 2022 is 1,79,000 at CAGR of 8.67% and If you have invested 1,00,000 INR in INDEX in same time it’s worth in March 2022 is 2,14,790 at CAGR of 11.54%.
Generally gold and index has inverse proportional co-relation. That means when stock market falls, gold price goes up. When stock market is falling at that time people take out money from stock market and divert into precious metal like gold, silver. Stock market is highly uncertain so that people’s thinking is like their money safe in Gold in tough times of market. When all are doing same thing obviously demand of gold will hike, Gold supply in the is limited as it’s natural gift from God, Human can’t produce gold. So Price of Gold definitely goes up.
Same way when Equity market is starting booming at that time Investors divert their money from Gold to Index for earning higher return. Gold may not give more than 10% CAGR but equity market can give higher return with higher risk.
We can also see same pattern in last 20 years chart. Gold may not good investment for high return but can help to park money in downturn of market. If just take out money when market is going down and invest in Gold it will give oppertunity cost payback and we not lose in market, and after when market improving we just take out money from gold and invest in equity market. We have to consider transaction cost, taxation on the profit/loss, portfolio size is enough to do the same thing or not, etc.
Wise spending is part of wise investing. And It’s never too late to start.
~Rhonda Katz
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