I was having a discussion with my friend about adding SGB I.e. Soverign Gold Bond in the Portfolio to increase gold Asset in my portfolio just to diversify. To be honest SGB is one of the best way to invest in Gold but would it serve the diversification purpose, that we were not sure.
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Like if I have 60% Indian Stocks, 20% Crypto and 19% Real Estate and just 1% Gold. Then on papers it says that I have diversified. But does it really diversified, not really. To diversify you have to have Sizeable value of each Asset class. If the Gold is around 10% in the above scenario then only we can say that it is diversified. Thus for any diversification we have to have a Sizeable value of that asset in pur portfolio to actually diversify the portfolio.
The main reason of diversification is that if one asset is not doing good, then other can compensate that. What if your very low value Gold asset is giving good returns but since it is so low in your portfolio, it doesn't change anything for you. This is the very reason of having good size of assets in your portfolio.
So yeah SGB is good, only if you are able to buy some good numbers of SGB to really diversify your portfolio. Yeah that is the reason we have to continue buying the SGB along with other assets to fully diversify our investment for the gold. The best part of gold by buying using SGB is that we can get 2.5% interest as well as the returns is tax free.
So SGBs are good for your long term goals only if you can commit ourselves in keeping it for longer duration like 8 years. Otherwise you have to sell it in the open market for loss if you need the money.
