Now that the dizzying Sensex is not blinding us anymore, we can look at introducing a third investment vehicle that reduces risk and provides stability to our portfolio: gold!.
Should I buy gold now?
Yes. For three reasons.
Get diversification advantage. Anytime is a good time to buy gold if the aim is an efficient portfolio.
A portfolio is efficient if it contains assets (like stocks, bonds, real estate and gold) that do not move up or down together. The aim of adding products to a portfolio is to bring the overall risk down by diversifying across assets.
The addition of gold, for example, to a portfolio will help move it to a higher level of portfolio return for the same risk or to the same return for a lower risk. Gold in a portfolio adds to liquidity, especially in distressed financial systems, acts as a hedge against inflation and is a solid store of long-term value.
These are enough compulsions for every portfolio to own gold, irrespective of timing.
Exploit 'recency' bias. Two, timing. But why are we saying this now? Behavioural finance has identified what it calls a 'recency' bias, or the propensity of people to invest in a thing that has been in the news.
Since the rush of gold-related news in the last month could not have escaped your attention, here is a good time to catch this bias and introduce the metal into your portfolio.
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