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Gold sounds old, invest in shares and mutual funds

May 20 2014, 09:41 IST
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It makes sense to abandon the shine for investments like shares and MFs. (Illustration: Shyam) It makes sense to abandon the shine for investments like shares and MFs. (Illustration: Shyam)
SummaryIt makes sense to abandon the shine for investments like shares, mutual funds.

In today’s economy, few asset classes polarise people and markets like gold does. For some, it is the absolute store of value that can save their sinking financial ship, standing tall even if the the global financial system collapses. For others, it is nothing more than a barbarous relic — the great economist John Maynard Keynes called it a non-yielding, non-productive asset adorned by conspiracy theorists and crackpots.

Loathe it or love it, but gold has enjoyed fairly high popularity in the past decade. Its price has reached new highs and managed to remain firm even when broad indexes have coasted. This points to the metal’s tag of being a safe haven. And it is precisely this feature that has prompted many investors to rethink their asset allocation and invest in gold.

But despite being the ultimate standard of unmatched wealth, safety and value for years, gold has now run into serious headwinds.

Lately, the sage of investing Warren Buffett made a convincing argument about gold, which, according to him, is an asset and not an investment. According to him, gold has two noteworthy shortcomings. First, as an investment it is not of much use and, second, it is not procreative. It might have industrial as well as decorative value, but both these purposes do not make it a good investment. For him, gold is as much an asset as real estate or crockery.

the difference between investments and assets

An asset is something that can be touched as and when desired. In case of gold, the owner can melt it and form a cube. Even after years of ownership, the cube will remain unchanged in size, and it will still be unable to produce anything. You can keep looking at the golden cube and admire it, but that’s pretty much where it ends.

Gold, silver, real estate and cars are all assets. If not looked after carefully, they will either depreciate or wear out with time. assets generally don’t appreciate in value, but people often get confused and buy them as investments thinking the value might go up. This is why the lay investor usually buys gold and silver.

Investments, on the other hand, are completely different. They have the potential to grow (or shrink) over a period and generate income in the form of interest or dividends. This clearly differentiates investments from assets such as gold or silver, which do not have the potential of

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