Equities or Gold: What Should an Investor Choose this Diwali?

The auspiciousness associated with Diwali provides the perfect time to look for newer avenues of investment purposes.

Without a doubt, gold continues to remain a favoured traditional option, while there are investors who are eyeing better numbers in terms of returns by investing in stocks. 

A comparison of equity and gold returns highlights that the latter remains an ideal solution as a hedge against inflation. This is especially true during phases of the market reeling under inflation or a stronger dollar. 

Equities have maintained considerable resilience in the past. There have been moments when equities have crashed and bottomed out, but only to bounce back with considerable vigour.

In the past decade or so, the price of 10 gm of 24-karat gold has jumped from Rs 29,600 in 2013 to Rs 62,480 at the moment, witnessing a significant 111% return. 

On the other hand, the benchmark index NSE Nifty has provided over 200% returns in the last decade from 6,299 levels in October 2013 to 19,406.7 at present.

Importantly, equities have a higher risk involved as compared to investing in gold. So, what should an investor choose among the two asset classes for this Diwali? 

Experts are of the view that as India prepares for elections in 2024  and an impending peak in the interest rate environment in the US, the outlook for the equity markets looks upbeat.

It is largely anticipated that gold, as well as equities, will perform well in the next few months. In fact, gold may further benefit from the anticipated economic slowdown in the US in 2024. 

Moreover, diversifying into gold from equities acts as a hedge against a stock market experiencing high volatility. With a Compound Annual Growth Rate (CAGR) return of 7–8% in the last decade, as seen in gold, it can always diversify the risk associated with investing in equities.

As an investor, it is important to note that equities and gold as investment tools have different roles in an investment portfolio, and one should look at investing depending on the risk appetite. For example, in case an investor is fine with high risk, the equities portion should be higher in the range of 70-90%, and the rest could be allocated to gold suitably as a hedge against tough financial situations. 

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