Your parents, like many people of their generation, may have invested in tangible assets such as property and gold. While you may choose to own some gold and property, remember that they involve locking in a large sum of money for investment. The right property for investment purposes is not easy to identify. Even to sell it can be a nightmare. Imagine committing lakhs or crores of your hard earned money today, being on EMIs and living a hard life today, thinking that you will be able to rent it out or sell it tomorrow at massive profits. But unfortunately you don’t find a buyer when you really need the money, or the builder is unable to deliver the property at the committed timelines. Haven’t we all heard of these terrifying stories?
In case of investing in gold in the form of jewelry, you have to incur ‘making’ charges, which result in reducing the value of your investment. So, if you are considering them from an investment perspective, think carefully before committing your cash. It is wiser to consider other asset classes which are liquid, allow for diversification, provide good returns and do not require a large lump sum commitment.
Why did your parents prefer gold and real estate?
- It was the fashionable "thing to buy"
- There is emotional attachment and an association with "doing well" when there’s gold in the house
- These are tangible, you can experience them and can pass them on to other family members
- There was a lack of knowledge of other asset classes
Focus on balance
Your portfolio needs to have a balanced approach, with a mix of different asset classes and products, as each product has its own benefits and drawbacks - and together, they can complement each other well. Mutual funds, for example, offer investors a good balance. They give you the benefit of not only asset allocation, but also that of diversification. Mutual funds today can help give you exposure to gold as well, via Gold ETFs (Exchange Traded Funds). These are advantageous in many ways and are in fact cheaper to buy and maintain as investment instruments, over buying real gold.
By investing in a mix of investment options, you can still hold your parents’ favorite choices of gold and real estate if you see merit in holding them, but you can also gain access to the long-term potential benefits of the stock and bond markets.
As you become a smarter investor and seek diversification actively, never forget your financial goals. Having clear investment goals is part of your attempt to beat inflation. With medium and long-term financial goals in particular, you should look to invest in assets that will beat inflation and in the long term, provide you with better returns. Historically, investing in stock markets has done this.
While investing in gold and real estate may make you feel good – you can see these after all and at times, can even feel emotionally connected to them – in terms of returns, these asset classes do not perform as well as other investment options such as stocks or mutual funds over comparable time periods.
- Gold and property have been very popular investments; however, they require large lump sum commitments. Property can be hard to sell.
- In a balanced portfolio, an investor needs a mix of more liquid (easy to sell) investments as well as the traditional asset classes such as gold and property.
- Mutual funds can give you exposure to gold and other asset classes; you can invest a modest amount and not be burdened by having to shell out a lump sum at one go.