Should you invest in gold close to retirement?
Sushma and Vijay Madhok are in their late 50s. For the past 25 years, they have been working to create a retirement corpus. They want to live off the income generated from their investments and don't want to work after retirement. They have invested mostly in the PPF, fixed deposits, mutual funds and gold jewellery. They also have a pension plan, from which they will start receiving a payout from next year. Given the rise in gold prices, they are wondering if they should redeem some mutual fund investments and put them in gold instead. What are the things they should keep in mind while making this decision?
Since the Madhoks are close to retirement, their investments at this stage should focus on income generation, with a portion targeted at growth to combat inflation and have a healthy corpus. While considering gold as an option to invest, the Madhoks must consider if it meets either of these requirements. The biggest drawback with investing in gold is that it does not create a revenue stream. So any money that is parked in this asset from Madhoks' retirement corpus will cease to earn the regular income that is necessary to meet their post-retiral expenses.
The second attribute an investment should have is growth. While the price of gold has been rising in the past few years, it tends to be volatile. Having a large part of the corpus in a volatile asset is not advisable at this stage in their lives. This, however, does not mean that they should completely stay away from the precious metal. The reason to include gold in their portfolio should not be its price appreciation, but its long-term benefit as a hedge against inflation and as an asset that does well when stocks and bonds do not. It will help diversify their portfolio and protect its value. So, a small allocation of not more than 10% of their portfolio can be allocated to gold.
The couple should first get Sushma's gold jewellery assessed for purity and value and calculate what percentage it forms of their total portfolio. They should make additional investments in gold only if it falls short of the prescribed level. They should also ensure that their other investments will be able to take care of their income requirements before they make any fresh allocation to gold. Some other ways to make an investment in the yellow metal are gold ETFs or e-gold. So, if the couple is comfortable with paper gold, they can go for the former, and if they want to hold physical gold, they can choose the latter.
Source: Economic Times
Visitors who read this article also read:
|
Was this article useful? Subscribe to our newsletter to get daily updates in your email for free. |
|
|
Related posts:
