They say that a crisis shows you the faces of your real friends. A financial crisis is no different - it shows you the basic nature of each product in your portfolio.
With the 30-plus per cent returns we got in the last few years, we assumed immunity to the inherent short-term risk that the product called equity carries. Now that the world battles the latest financial crisis and Indian stocks are off by almost a quarter, it is a great time to rebuild your portfolio in case you were using just equity (in the form of equity funds or direct stocks) and debt (in the form of your Employees Provident Fund, Public Provident Fund and fixed deposits) in it.
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.
The stability comes from it being a great hedge against inflation -- it may not give returns like equity can, but will keep the money's head over the inflation trend line (see Market Record).
Market Record
Return* (%)
Gold is the perfect vehicle for inflation-
adjusted conservative returns
Sensex 23.05
Gold 12.69
FDs 9.35
Inflation 5.24
* Average return per year from 1995 to 2008
And to make the deal sweeter, this product is on steroids currently and is up 40 per cent from last year. Ladies and gentlemen, introducing the contents of the cloth bundle at the back of your Godrej safe, or of the box in the bank locker, on your fingers and around your neck: the not-so-humble rock star: Gold.
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