Equity or gold which one is a safer bet during volatile markets
The Financial Crisis of 2007-08 not only shook the entire United States of America but also disrupted the economies of many developing nations. However, the shock waves weren't that damaging for a country like India since Indians are popular for saving and then spending
However, for the ones who have an opposite perspective towards saving, which is spend and then save face tougher times . These pandemics, economic crashes, depressions aren't easily predictable, and in-order to survive them we need to adopt an efficient saving method. By an efficient saving method, you don't have to put a certain sum of money aside but rather you have to pragmatically invest it so that your money doesn't get eaten up by inflation. You all must have heard the saying "Better late than never" well in the case of investing it's more like "The sooner the better." So, start investing from today itself because nobody in the world can accurately speculate the next crash or the next pandemic! If you think that investing in the market during this coronavirus pandemic is risky since the volatility index is very high then don't worry we will help you, by making the volatility your best friend rather than adversity! Well, if you people have some idea about the various investment products in the market and also, endure some knowledge about how the equity and debt market functions and thus you strongly believe that the current scenario will not be an optimal time to invest in both of those markets then for your convenience let's step into a jewelry different turf, commodity market.
Under the commodity market, whenever there is a crisis like situation arising, gold tends to be the most traded commodity. If we dig up the past, gold prices have witnessed a meteoric spike especially during or after the crisis. During the great financial crisis of 2008, gold appreciated from Rs. 8000 to Rs. 25000. After that, it went way past the Rs. 31000 mark in the year 2016, and currently, while we were writing this article the gold price was Rs. 52,970! Even when the market isn't experiencing a tough time, gold is still considered as the most viable option for investing by most of the Indian people. We Indians are so much associated with gold that currently we hold 21 thousand tonnes of gold which is more than the gold reserves held by the top five countries in the world.
The gold price always surges and shoots up, whenever geopolitical tensions arise or when the dollar price plunges, and during a crisis like the current situation, the gold price was appreciated! So, after witnessing all the spikes and surges taken by gold, if you speculate a positive uptrend and wish to invest in it then there are 4 different ways.
The first one is purchasing physical gold from the market. This is the most preferred option by since even if they don't wish to sell it after appreciation they can make jewelry out of it.
The second option is investing in gold-related mutual funds. Whenever the gold price appreciates, you can get hefty returns from these funds.
The third option is the gold ETFs (Exchange Traded Funds). These are traded just like stocks in the equity markets. You can invest in them directly with the help of a broker, and a bright side to them is they have a high liquidity factor, which means you can easily buy and sell them at any time.
The last and the least expensive investment option in gold is Gold Bonds. Sovereign Gold Bonds was released by RBI in the year 2016, it is considered as the most effective option for investment. Along with the returns from capital appreciation, you also receive an interest ranging from 2-2.5%.The next best aspect of investing in gold is,it proves to be the most effective hedge of all time. For all those who don't know what hedging is, hedging is buying an investment that can reduce the losses and protects the other investments. In a nutshell, gold works as a shield in times of highly volatile markets to protect your equity investments.
Speaking about equity investments, which at times have high volatility! Let's take the recent scenario to change your perception.
This pandemic or whenever the market is experiencing a fall, there is a positive spike in the blue-chip stocks. Blue-chip stocks are the stocks of those companies which have a national reputation for quality, reliability, and ability to generate profit even during difficult times. In the game of poker, blue chips endure the highest value just like these stocks and therefore their name was derived from poker. So, it's obvious, who wouldn't buy the most promising and expensive stocks of all time when there is a chance to purchase them at a cheap price!
Whenever you witness the market functioning haywire, remember the tip given by The Great Warren Buffett.
Well, most of you must have heard the above tip, and we would like to tell you that neither us nor Warren Buffett can equip you with the perfect portal to enter and exit the market so that you earn maximum returns and never lose a single penny.
However, we would like to tell you that if you don't want to create huge losses then, you should always take clear calculated risks and also, try to keep the emotional aspect aside while investing. You should focus more on research rather than listening to what others say so that you don't end up investing in a bubble! One of the most common mistakes that most of the investors commit while investing during highly volatile scenarios is they liquidate their equities to purchase gold because they felt that the surging gold price will provide a better return. If the above mistake is done when the crisis is still going on, then selling the equity at a discounted price and investing more money on the rising gold wouldn't lead you anywhere. The reason is, it is observed that whenever the crisis gets over people start treating gold like a dead investment, and thus, gold prices remain stagnant for a few years. Once everything stabilizes, the equity market starts booming again. Gold investment may prove effective in the short run but, if you compare its returns with the equity in the longer run, equity has always outperformed gold. Similarly, there are many instances during highly volatile scenarios when the gold price looks tempting!
So, let's arrive at the most perennial question of all time. Equity or Gold which is a safer bet in volatile markets?
We studied all the crisis-like situations and all the different time frames of volatile scenarios. After all that, we finally encountered a common pattern which is, whenever the market experiences a huge crisis, gold prices witness a sudden surge and people further boost those prices by investing in them rigorously. The great financial crisis of 2008-09, the European debt crisis in 2011, the economic slowdown of China in 2015-16, and even when NPAs (Non-performing assets) increased in India, gold prices were majorly impacted. On the other hand, equities constantly experience sharp plunges as people begin to withdraw their funds because of the high-risk factor. After the crisis gets over, equity outperforms gold and the gold prices remain stagnant until the next economic downfall. So, an ideal strategy for investing would be to sell a portion of your equity when it is booming and invest that amount in gold before the next financial crisis. Once a new financial crisis hits and gold prices start surging, sell your gold investment, and start buying blue-chips!
All the analysis and the observation conducted by us are solely based on past performances and thus, it shouldn't be considered as an astringent investment strategy. However, when 'past' comes into the picture we should always recall the words said by Robert Shiller "Past cannot be considered as an efficient indicator for future analysis but we can always try learning from the past!"
In the end, one thing is clear that time plays a major role while investing in any investment option. Investing at the correct time will add zeros at the end of your portfolio value. However, losing the opportunity will eventually make it zero!