Why and how much to invest in gold

Every investor and even a layman knows that it's extremely safe and stable to invest in gold. However, why is there a sense of stability and security when it comes to investing in gold. Apart from that investors are generally confused when it comes to composition of gold in their portfolios. Whatever the case it is a must to have gold in your portfolio. Today I will try to answer some of these generally asked queries.

Why Invest in Gold?

Since time immemorial gold is seen as a commodity of immense value and is attached with social status. It is used in making jewellery, dentures, electronic circuits & equipments, industrial catalysts and what not. This has driven it's market price through the roof. Barring few lows gold has always performed well. During economic downturn or recession gold is the best hedge against eroding financial & notional investments. The reason is gold is something physical and real which has real value. This is the very reason various central banks are hoarding gold for last 3-4 years or since 2008 U.S. recession. When economy is not performing well investors look out for stable and secure investments, it is the time when they lap up gold at any price.  This is precisely the reason why gold prices shoot up like anything during recession. Another reason worth looking up is that gold reserves are dwindling down with each passing day. With demand increasingly going up and supply going down, gold prices are nowhere going to stay where they are. You can invest in gold either by purchasing physical gold bars from financial institutions or by purchasing it indirectly through Gold ETF or GETF.

Why and how much to invest in gold

How much to invest in Gold?

Having gold in your portfolio is good but don't overdo it as you need to diversify across asset classes in order to generate a consistent and fair amount of return. Gold is basically included to give your portfolio a safety net just in case it is not performing well. Ideally an allocation of 10-20% is more than enough to save you of any considerable fall in your notional investments. If you are thinking to buy physical gold then prefer gold bars rather than jewellery as gold jewellery looses it value over a period of time due to adulteration & wear & tear. But physical gold beyond a level attracts Wealth Tax in some countries like India. Apart from that gold needs to be stored and taken care of. So considering these factors I would advise you guys to invest in Gold mutual funds and ETF's. They are safer and does not attract any wealth tax. 

Whatever the decision you take don't just blindly jump into gold bandwagon as different assets perform well in different times. Last 4-5 years belong to Gold. So stay focused keeping in mind your ultimate investment objective and invest accordingly.