Stocks or Gold. The dilemma intact
Considered to be the best hedge against inflation and most productive asset in the long term gold has been investor’s favorite for a long time now. However, barring some hiccups it received in terms of value erosion few days back (though back to Rs 28000/10 gm) it is more of a win-win situation for an investor to allocate more than 10% place in the portfolio.
However, the question here is whether gold is better option than a stock for example Hindustan Unilever Limited (HUL) considering the situation in the market in the past few weeks.
Gold is always regarded as a safe bet in case a new investor (or an existing one) thinks about investing his money at present. In case your Life Insurance Corporation (LIC) policy matures and you receive a cheque of suppose Rs 50,000 where would you invest the money?
Would it be in stocks or gold?
Surely, the obvious choice would be trusted yellow metal even if it received a tremendous fall lately before gaining back the loss in points. Gold is always regarded as safer than equities which always carry more risks and unstable returns.
However since the recent correction in demand of gold prices people have started looking for better options than gold. In the last few weeks a sense of confidence has returned back into bourses and equities of at least companies with large market caps have promised good returns.
Let’s compare HUL with gold considering the amount you are ready to invest with investment horizon of 5 years minimum.
Once we compare we find that a solid blue chip company such as HUL has found its share price escalated to new highs in the last decade with a compounded rate of around 13 % and it is something worth noticing.
The dividends offered by the company are considerable and the future is bright too considering the strong fundamentals of the company with strong performance in the last many years. However, the choice appears to be weak when we take inflation effects into account.
In case of gold for last 10 years gold price has compounded at rate of around 14% but it doesn’t offer nay dividend. In addition the rental and storage costs are associated with the yellow metal.
Therefore, both the investment opportunities seem almost similar in returns. The only thing that world for gold is that it is the best hedge against inflation but being a commodity it is too much dependent on demand and supply cycle unlike equities.
Therefore, the dilemma is intact still and the solution remains unclear unless you are a blind supporter of gold or equity and care little about options.