9 benefits of including gold in retirement portfolios (2024)

Including gold in retirement portfolios in India offers several advantages, such as diversification, inflation protection, improved portfolio performance, and liquidity. Gold's historical status as a store of wealth and crisis commodity, along with its cultural significance and tax benefits, makes it an important component of a comprehensive retirement strategy.

Incorporating gold into retirement portfolios in India offers numerous advantages, helping investors achieve a more balanced and robust investment approach. For millennia, gold has been highly prized in India for its cultural significance and financial stability. Here are the main benefits of including gold in retirement portfolios

1) Cultural Significance and Trust

Gold has a unique position in Indian culture since it is frequently connected with wealth, success, and security. Because of this cultural connection, gold is usually seen as a secure investment. Including gold in a retirement portfolio may bring psychological comfort and stability, which is especially beneficial for long-term financial planning

2) Diversification

Diversification is an important financial technique that entails spreading assets across many asset classes to mitigate risk. Gold has a low to negative correlation with other asset forms such as stocks, bonds, and real estate. This implies that gold's price movements are frequently uncorrelated with those of other assets.

When the stock market undergoes volatility or downturns, gold frequently holds or even increases in value, acting as a hedge against losses in other aspects of the portfolio.

3) Inflation Hedge

Gold is often considered a hedge against inflation. Inflation diminishes the purchasing power of money, while gold has always held its value throughout time.

In India, where inflation rates frequently fluctuate, incorporating gold in a retirement portfolio helps safeguard investments from the eroding impacts of inflation, ensuring that the portfolio's buying value is maintained.

4) Store of Value

For thousands of years, gold has served as a solid store of wealth. Unlike paper currency or digital assets, gold has inherent physical qualities that contribute to its long-term worth. This feature makes gold an appealing asset for long-term investment, particularly in retirement portfolios when wealth preservation over decades is critical.

5) Crisis Commodity

Gold is sometimes referred to as a "crisis commodity" because it performs well during times of geopolitical unrest, economic uncertainty, or financial market volatility. When investors lose faith in established financial institutions or fear an economic downturn, they frequently turn to gold as a haven. Including gold in a retirement portfolio can give additional protection and stability during times of crisis.

6) Liquidity

Gold is a highly liquid asset, which means it can be bought and sold in the market without drastically changing its price. This liquidity is important to retirement portfolios since it enables investors to easily convert gold into cash if necessary. This flexibility is especially valuable in retirement, when access to assets may be required for unforeseen needs or possibilities.

7) Portfolio Performance Enhancement

Research has indicated that having a small amount of gold in a diversified portfolio can improve overall portfolio performance. Gold can help to increase long-term risk-adjusted returns by lowering volatility and offering protection during market downturns. This increase is especially beneficial for retirement portfolios when stability and consistent growth are critical.

8) Ease of Investment

With the introduction of digital gold, gold ETFs, and sovereign gold bonds, Indian investors may now invest in gold more easily and conveniently. These modern investment options avoid the challenges connected with the storage and security of physical gold, making it simpler to integrate gold into retirement portfolios.

9) Tax Benefits

Certain gold investments in India, such as Gold ETFs and SGBs, are tax-efficient. For example, the interest generated on Sovereign Gold Bonds is tax-free, and capital gains tax exemptions apply if the bonds are kept until maturity. These tax breaks can bring additional financial benefits to retirees seeking to maximise their investment returns.

(The author Sachin Kothari is Director at Augmont Goldtech. Views are own)