Is it time to transfer your gains from gold to equities?

Gold has been the best performing asset class over the past year with a return of around 50%. Renu Yadav asked experts if it makes sense to transfer the gains from gold to equities, while the latter segment is still way below its peak

Gold has been the best performing asset class over the past year with a return of around 50%. The investment demand for the yellow metal has gone up lately as people move to risk-averse assets and exiting risky ones such as equities amid the covid-19 crisis. This may have also led to change in asset allocation with portfolios becoming gold-heavy. However, there are fears that when the lockdown opens up across economies, the rally in gold may come to a halt. Renu Yadav asked experts if it makes sense to transfer the gains from gold to equities, while the latter segment is still way below its peak.

Anirudha Taparia, Executive director, IIFL Wealth and Asset Management

Move from gold to the extent it has exceeded ideal allocation

Wealth management is about astute asset allocation to ensure wealth preservation. Gold’s appeal as a ‘safe haven’ has made it an investment of choice during periods of heightened uncertainty perpetuated by economic or political turmoil.

However, gold, for most of our clients, is a small percentage component, which is maintained as a safety hedge rather than as an instrument to enhance returns. Gold outperformed equity last year. In fact both gold and sovereign debt outperformed in the 2008-2009 global financial crisis as well. If the weightage of gold in your portfolio has increased beyond the ideal asset allocation limit suited for you, it would be ideal to shift to equities and debt.

This again should be based on an investor’s downside tolerance. Even in equities you need to invest within the asset allocation limits and book gains at higher levels and invest in other asset classes such as debt or gold depending on risk appetite. Investors should create portfolios with minimal risk for the short term and for the long term to maintain equity at levels where you can comfortably tolerate volatility.

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