Gold & Risky Assets

The value of gold cannot be estimated, and this present a risk of constant fluctuation in its value.  This is based on the fact that price of gold fluctuates widely at times regardless of the currency used to measure it. That said, gold can lose a substantial amount of its value within a given period of time and thus it has no significant return on investment (Kramer, 2016). However, the little or below average return of gold are acceptable in a portfolio since it can be used as an insurance to the investor who has his primary assets being financial. It is thus an insurance against potential catastrophic assets facing the assets such as hyperinflation and war (Nathan, 2011). There are varying opinions on the amount of gold and other metals to be included in one’s portfolio which on the length of the investment term one is considering, and an individual’s risk assessment The Market Oracle, (2015). Thus the opinions depend on how one perceives risks and the risk that they are willing to take.

The returns on gold investments have been fluctuating in a similar manner with that of other stocks though overall the return on investment on other assets has increased significantly. Practically, gold is a non-cash asset and thus has no capacity to generate income. However, if the prices of shares in a portfolio falls, one is certain of obtaining between 2 to 4 percent per annum return in dividends, if a company performs well dividends will increase (Kramer, 2016). This cannot be said of gold. An asset with a low historical return can be valuable in a portfolio since an asset that has been performing poorly in a given period is likely to perform well in another period (Kramer, 2016). Thus, it may offset poor performance of other assets in such a time.

 

References

Nathan, P. (2011). The new gold standard: Rediscovering the power of gold to protect and grow wealth. Hoboken, N.J: Wiley. 48-49

The Market Oracle, (2015).Is Gold Investing Risk Free? Retrieved from: http://www.marketoracle.co.uk/Article49569.html

Kramer, K. (2016). Getting past the all-or-nothing mentality in gold trading. Retrieved from: http://www.cnbc.com/2016/03/16/gold-investing-limiting-risk-in-the-precious-metals-trade.html