Investor Corner/The asset classes/Real Assets: REITs, InvITs and Gold
2.5.4 Gold as an Asset Class
Gold acts as a hedge against inflation, currency weakness and extreme market stress. It produces no income of its own; returns come purely from price appreciation. Most long-term portfolios keep a modest allocation of around 5 to 10 percent.
What gold is actually good for
Gold has historically tended to hold or increase in value during periods of high inflation, currency instability, or acute financial market stress, precisely the conditions under which both equity and, at times, debt can struggle simultaneously. This makes it a useful diversifier specifically for the kinds of extreme scenarios that other asset classes handle poorly.
What gold is not particularly good for
Unlike equity, gold pays no dividend, and unlike debt, it pays no interest. Its long-run real return, after accounting for inflation, has historically been considerably lower than equity's over most extended periods. Gold is better understood as a portfolio stabiliser and diversifier than as a primary long-term growth engine.
How much is generally sensible
A common guideline suggests keeping gold to somewhere between 5 and 10 percent of an overall portfolio, enough to provide a genuine diversification benefit during periods of stress without letting it meaningfully drag down the portfolio's overall long-run growth during normal market conditions.
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