Gold is not an Investment, but it is a great hedge against Inflation.
Gold is technically not an Investment. It is a commodity. An investment is somethimg that can produce a cashflow or it has a potential to produce a cashflow in the future. Mutual funds or stock can pay dividends, Bonds pay interest, Real estate can be rented out for a monthly rent payments, starting your own business can give you earning from your revenues BUT GOLD DOES NOTHING. It is an inanimate object.
But mostly Indians are emotionally attatched with this commodity. Allmost every family in India wants to buy more and more Gold as much as they can but they are not willing to accepts that Gold is not an investment it is simply a purchase. It is not real investment. It's value goes up and down, but it does not produce a stream of income for you.
If you happen to buy gold when it is relatively cheap and then sell when it is expensive, you have made a captial gain. That is trading, more of a speculation than an investment and it is based on luck rather than skill.
In the long run, Gold has not given investors much returns beyond inflation. But since it produce no income, that is how it should be. It should keep up with inflation. Theoretically, in long run the real return (return minus inflation) should be equal to zero.
Now the question arises, if Gold is not an investment than why should one invest in this commodity. The answer is " Gold is a excellent hedge against inflation. The best thing is in this commodity is that a Gold can easily beat inflation in a long run.
Few days ago, one person ask me a question through mail that he has Rs 15 lacs in his bank account and he want to invest this money somewhere in such a manner that he can spend this amount on his daughter marriage but after 20 years.
So here comes the inflation factor, If we assume the inflation rate of 5%, after 20 years the value of today's Rs 15 lacs will be approx just Rs 560,000 of today. So he needs to be save almost 40 lacs today, so that this Rs 40 lacs of today will have value of todays Rs 15 lacs after 20 years.
But if this person buy a pure gold ( not in the form of ornaments ) in physical form of the whole amount of Rs 15 lacs than he easily beat the inflation in a long run of 20 years.
So, I adviced him to buy a pure gold in physical form and I am very much sure that he can achieve his goal.
Gold is technically not an Investment. It is a commodity. An investment is somethimg that can produce a cashflow or it has a potential to produce a cashflow in the future. Mutual funds or stock can pay dividends, Bonds pay interest, Real estate can be rented out for a monthly rent payments, starting your own business can give you earning from your revenues BUT GOLD DOES NOTHING. It is an inanimate object.
But mostly Indians are emotionally attatched with this commodity. Allmost every family in India wants to buy more and more Gold as much as they can but they are not willing to accepts that Gold is not an investment it is simply a purchase. It is not real investment. It's value goes up and down, but it does not produce a stream of income for you.
If you happen to buy gold when it is relatively cheap and then sell when it is expensive, you have made a captial gain. That is trading, more of a speculation than an investment and it is based on luck rather than skill.
In the long run, Gold has not given investors much returns beyond inflation. But since it produce no income, that is how it should be. It should keep up with inflation. Theoretically, in long run the real return (return minus inflation) should be equal to zero.
Now the question arises, if Gold is not an investment than why should one invest in this commodity. The answer is " Gold is a excellent hedge against inflation. The best thing is in this commodity is that a Gold can easily beat inflation in a long run.
Few days ago, one person ask me a question through mail that he has Rs 15 lacs in his bank account and he want to invest this money somewhere in such a manner that he can spend this amount on his daughter marriage but after 20 years.
So here comes the inflation factor, If we assume the inflation rate of 5%, after 20 years the value of today's Rs 15 lacs will be approx just Rs 560,000 of today. So he needs to be save almost 40 lacs today, so that this Rs 40 lacs of today will have value of todays Rs 15 lacs after 20 years.
But if this person buy a pure gold ( not in the form of ornaments ) in physical form of the whole amount of Rs 15 lacs than he easily beat the inflation in a long run of 20 years.
So, I adviced him to buy a pure gold in physical form and I am very much sure that he can achieve his goal.
