Beyond Equities: Why Gold Still Matters In Your SIP Strategy

Stock markets around the world are tumultuous–new tariffs and trade tensions have impacted share prices, making investors nervous. With the equity market swinging, investors may be rethinking how they allocate their money. While SIPs are a good option to invest in stocks, it’s important to diversify your portfolio instead of putting all your eggs in one basket. Gold acts as a safety net when markets drop. A mix of gold and SIPs can help steady your portfolio and protect your wealth.

Why SIPs Alone Are Not Enough

For handling the market’s ups and downs, SIPs can be a great option. But, if SIPs are all you invest in when the market falls, it could erode a lot of your investment’s value. This can derail important goals, like buying a home or funding your child’s education. To ensure those goals are not affected by market downturns, it is crucial to spread your money across different types of investments. That’s where asset allocation strategies, like the one below, may be useful. 

‘100 Minus Age’ Rule

A popular rule of thumb for building your portfolio is the ‘100 minus age’ rule. This simple approach helps you decide how to distribute your money between equities and other safer assets. Here’s how it works. 

100 – your age = equity allocation

For instance, if you’re 40:
100 – 40 = 60

This means 60 per cent of your portfolio can go into equities (like SIPs in mutual funds), and 40 per cent into more stable investments such as gold, fixed deposits, or government schemes. The idea is to reduce risk as you grow older, while still allowing your wealth to grow. Equities offer higher returns but come with higher risk while gold and fixed-income assets provide stability and protect your capital during volatile times.

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Why You Should Use It In Context

This rule is not a one-size-fits-all. It may be a good starting point for beginners, but may not for others with complex financial needs. Investment choices are also influenced by various other factors like individual financial goals and the deadline for achieving them, unique financial situations (income and debt), and increasing lifespans. 

Why Gold Matters & How To Invest In It

Gold plays a unique role in balancing your portfolio as it often acts opposite to stocks during market drops. For instance, in 2008, Indian stocks fell ~50 per cent, while gold rose ~35-40 per cent. Even during good economic times, gold provides stability–in 2014-2019, Nifty 50 was at 12-15 per cent yearly while gold was at 8-10 per cent. Gold has consistently held its value during high inflation, as was seen in the early 2010s. Therefore, gold can act as a safety net in your investment mix, helping to cushion against losses when other investments become more volatile. There are many avenues to invest in gold like Gold ETFs, mutual funds, and digital gold.

Fluctuating markets can push your portfolio off course. Rebalancing at regular intervals, or when needed, helps keep it aligned with your goals. Choosing the right mix of investments and reviewing them periodically can grow your wealth steadily and better prepare you to handle market ups and downs.

(The author is the Senior Manager-Communications at BankBazaar.com. This article has been published as part of a special arrangement with BankBazaar)

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