Gold Investment vs Stock Market - YouTube

Namaskar, My name is Mukul, and welcome to Asset Yogi.

Friends, gold has always been a very popular investment in India.

And is today as well.

If we see according to Annual value of Investment,

so gold comes second after real estate.

If we talk about return for past 1, 1.5 year

gold has also given good returns of about 25-30%.

On the other hand, the stock market has gone down and

its returns are also not good.

In that case, it looks like gold can be a good investment.

On the other hand, one view is that good is not a productive asset.

In fact, Warren Buffett also says gold is not an income-producing asset.

Please it however you feel like but

gold will still not produce your income.

So which of these views is correct?

In fact, a lot of you had a query

that should we invest in gold is this the right time?

So this we will try to find out in this video.

We will see historically, how were gold and stock returns,

and we will see their comparison.

We will compare those with risk, returns, and other parameters.

So we are going to do 3 part series on gold.

We will do 3 videos in this particular video

we will compare gold with stocks and see historically how are the returns.

And if gold is a good investment, then when is it?

And if we want to keep gold in our portfolio then how much?

You stay tuned in this video.

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and want to learn concepts

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You will get the link for the playlist in the description box below.

Let's first understand gold is what type of investment?

See gold is a commodity, meaning there is no income-producing asset under it.

If we compare it with other assets, there are income-producing assets there.

For example, if you invest in real estate, you get rent from some of the

other property which becomes your income.

If you invest in farm or corp land then you can get income by selling crops.

If you invest in stocks there is an underlying asset, business.

Many people work under a business, income is produced.

And the business is grown.

For this reason, the stock price goes up because the business grows.

But the next question is if there are no income-producing assets in gold

then how does its value increase?

It increases just due to demand and supply.

Suppose in India there is a continuous demand and we keep on buying gold

for this reason, the gold price rises.

If this demand stop for example any time,

then the gold price could go down and it goes too as well.

Now you will think if gold is not producing any income,

it's better not to invest in it.

No, I'm not saying that we will know soon if we should invest

then why and how much?

But before that let's understand how can we buy gold.

See first understand 2 use cases when to buy gold, and these should be distinct.

The first use case is to buy it for consumption

meaning if we are buying gold for jewelry, we are buying for use,

buying it for consumption.

We will not consider that as an investment.

There is a big reason for that.

When you buy gold as jewelry, you will be charged with making changes.

That could be up to 20-30%.

As soon you step out of the jewelry store,

the value decreases by 20-25% at that moment.

The second big problem of jewelry is storage.

Either you store it in your house, but then you won't be able to invest due to risk.

Or you will store in under bank locker, in a bank locker

you need to take the cost for it.

The third problem is impurities.

When you buy jewelry, it is not made in more than 22 karats,

it is always made in 22 karats or less than that and impurities are added to it.

Because gold is a very soft metal.

So basically keep aside the jewelry you are buying, because it is not an investment.

Other than that we can also buy gold as an investment,

and there are 4 ways to do that.

First is physical gold, this physical gold is not jewelry.

Here we buy gold in form of bullion or coins.

Bullion means gold biscuits, you can buy that.

There you get gold of 24 karats.

But here also there is the problem of storage,

if you store it at home there would be a risk, or if you store it in the bank

there would be some cost to it.

So for this reason, we have the option for digital gold nowadays.

We have those three options.

The second form of gold investment is of ETF that is Exchange Traded Funds.

ETF in a way works like mutual funds, just like mutual funds

invest in stocks, ETF invest on gold

in physical form and stores it within itself.

And that fund gets valuated and you invest in that fund.

But to invest in ETF you need a Demat account, with some stockbroker.

And if you haven't opened a Demat account yet, you can

I will provide some links below.

The third method we have is gold mutual funds.

Gold mutual funds are in a way fund of funds.

It invests in your ETF.

Those who do not want to invest directly into ETF or don't want to operate

a Demat account, they can invest in gold mutual funds,

but it has some costs.

And here we have the Fourth way and that is of Sovereign gold bond.

RBI issues gold bonds in which you can invest.

Now I will do a detailed video on these 4 methods and there we will see

all the comparisons, what are the pros and cons to each and where can you invest.

Along with that, in a video, we will also see a life demo where we will

understand how to invest online in ETF and sovereign gold bonds.

Other than this, there is one more use case for gold,

if there are requirements in future or if want for marriage

then what are best strategies for that and how can we buy gold risk-free,

this we will also cover in a video.

But in this video let's compare gold with stocks and see historically

what type of returns were there.

So see here as of 30th June 2020, I have compared gold returns and

sensex returns.

Five years

ten years

twenty years and of thirty years.

I took Sensex because nifty was not this old and we needed to take 30 years

so i took sensex.

If we talk about Sensex returns of the last 5 years so

anualised returns are only of 5 %.

Whereas gold returns in this period were 13%.

If we see for 10 years also, Sensex has not performed that well

gold yield better returns.

If we talk about 20 years, still Sensex hasn't performed well,

gold returns were better.

If we talk about 30 years, this is a long period here Sensex returns us

better of 13%, gold returned only 10%.

After looking at this data it feels like maybe also in the long term

gold performs better, maybe performs better than Sensex.

But let me talk to you just a year back, let's go to 30 June 2019.

Let's again see returns of 5 years, 10 years, 20 years, and 30 years.

The annualized return for Sensex was 9%, gold only returned 4%.

Now see it suddenly shifted.

If we talk about 10 years then also Sensex returns are better.

I talk about 20 years then it's almost similar.

In 30 years Sensex returned 14 % which is better than that of 10% of gold.

But, so much difference in just a period of 1 year, how?

Basically, maybe somewhere this is affected by the timeline

that from when to when we are calculating returns.

We should always see the historical graph of any investment that how it performed.

So see here I plotted the graph of gold and nifty because we don't want

to go back a lot in the past we just want to understand the patter

So that let's understand with gold v/s nifty.

The black-colored graph is for nifty and the blue-colored graph is for gold.

Now see, it's 2020 here you can see gold pattern, it is going up very fast,

and you can see here stocks pattern went down very fast.

Have we already seen this kind of pattern before?

Maybe it was the same in the year 2015-16, that

nifty went down and gold went up fast.

Let's go back more in the past to study and see that have we seen

more of this kind of pattern before?

Let's see the annual returns directly till 2008.

If you see the returns from 2008 to 2020

you can see I have marked it in grey color

that whenever there is a sharp fall in nifty, gold went up.

Here see, there was a financial crisis in 2008, 2011 following the same returns.

Here -25% whereas gold was almost 0.

In 2015-16 you can see, it fell a little in 2015 then it rose,

if we talk about 2 years nifty returns were not good but if we talk about

gold, here also gold went up by 11%.

If we talk about 2020 then here also stock is -15%, and gold went 24% upward.

So why is this happening? Let's try to identify this pattern once.

See financial crisis occurred in 2008, here nifty sharply went down and gold upwards.

And after that, there was one more crisis, the Debt crisis of Europe in 2011.

2008 crisis in a way came late in Europe, the effect of which

we can see a lot in 2011,

There was a lot of crisis in Italy, Spain, and Greece.

A very huge Debt crisis came in Europe.

At that time you see nifty also went down and gold also went up.

Let's see more patterns than what happened in 2015-16?

There was news about china slowing down,

and NPA of the bank was increasing a lot in India

When this news came a lot of companies also started getting bankrupt.

So see here also nifty went down and gold picked up.

If we talk about 2020, here also crisis came

here nifty descended very fast and here our gold prices went up very fast.

From these patterns, it is very clear that whenever crises come inside the economy

or stock market goes down very quickly

Then gold escalates quickly.

If we talk about 2008-9 too many crises came

at that time also people were looking for safe investments.

If we talk about 2011 then also people thought the economy can sink a lot

again gold started growing.

In 2015-16 when NPA in India increased a lot

then also people thought the economy can again go down a lot

so they invested a lot in gold.

Today also because of COVID 19 we are thinking the economy could go down a lot

So people are searching for a safe investment and gold is also treated

as a safe investment, and that too has a historical reason for that.

Gold was earlier always used as a form of currency,

after that when currency started to come in printed form

then also gold standards were used to maintain, and it's not like

the government could print unlimited currency.

But in today's date, the gold standard has ended in most countries.

Nowadays any country could print however much they want.

Now that more currency could be printed.

So if a lot of currency is in circulation, then inflation rises.

An increase in inflation mean hyperinflation could also come, it can

also, be seen in a lot of countries.

Whenever there is a lot of crises in an economy the chances for

hyperinflation increases by a lot.

Meaning your commodities could cost a lot more, you have to spend a lot

of notes to buy the same commodities.

But if you have gold then maybe you can buy stuff in exchange for gold

value of gold does not drop.

Therefore gold is treated as a safe investment option.

Now we can also do a detailed video on Gold standard and Fiat currency,

you can write your suggestion in the comment section below.

But now let's compare gold with stock in our old four parameters.

In which we compare every investment.

Returns, Risks, Liquidity, and Volatility.

First of all let's talk about returns, if you look at the long term returns

in the stock market, then on average, you can see returns of 14-15%.

But if we talk about gold you get 8-10% returns.

So basically gold is not a wealth creation asset,

stock is a wealth creation asset. There are your income-producing asset

because there are businesses which grow,

hence for this reason stock prices grow.

But why should we buy gold? We will talk about that soon.

Second, let's talk about risks, there is a lot of risks

in stocks compared to gold.

Gold has less risk but not that less either.

See the graph that we also saw, the prices were fluctuating a lot up to and down.

It means the volatility is also very high.

And a way to calculate risk is also standard deviation, meaning

How much average return is given by an asset class

how much up or down from that the return goes, we call it Standard deviation.

So gold also does not have that low of risk so we will call it moderate risk.

Now the third parameter, if we talk about liquidity,

the liquidity of stocks is very high, you can see stocks any time in exchanges

Overall the liquidity of gold is also high,

you can easily sell physical gold anytime.

ETF and mutual funds can also be sold easily in an exchange.

But if we talk about sovereign gold bonds you can't sell them for 5 years

there some liquidity problem arises.

But we will compare all types of gold investments in upcoming videos.

Let's talk about the fourth parameter volatility.

The volatility of both gold and stock is high as seen in our graph that

both can fluctuate up and down a lot.

So it depends on what timeline we are seeing it.

Gold returns could also be more in some timeline and

stock returns could also be more overall in some time period

But if we talk about a longer period of time

so stock returns always beat gold returns

Because as we understood now there is an underlying asset, Business

which is producing income.

So this we saw the detailed comparison of gold and stocks and we

understood that stock gives a good return in a longer period of time.

But now our final question comes, that if want to invest in gold

then why and how much?

We should invest surely invest some in gold.

We can keep at least 5-10% in our portfolio.

And why should we keep it?

Gold always does a very good job of Hedging.

Gold is not a great long-term investment but it's a very good Hedging instrument.

And what is the meaning of hedging? Hedging means we decrease our risks.

See there is much risk in stocks compared to gold as we saw earlier

that there is a moderate risk in gold but a high risk in stocks.

So at times of distress

whenever there is distress or crisis, if we talk about 2008-09, 2011, 2015-16

or we talk about 2020,

Whenever stocks go down rapidly, we suffer some losses.

So at these crises, gold could reduce our losses.

By chance, if you need cash you can sell that gold

because its value definitely would have increased.

You need not sell stocks at that time,

cause maybe the value of the stock has plummeted at that time.

So we saw a detailed comparison of gold and stocks as an investment.

In the next video, we will see a live demo of how can we buy ETF or gold bonds.

Or if we want to buy gold for the long term, for long term use

then how can we buy that risk-free.

But before that, i will request you if you haven't opened a Demat account yet

do open it I will give the link for that below,

because it gets very easy to invest in ETF and gold bonds

through the Demat account.

If you liked this video then do like and share it with your friends and family.

Cause they may also be confused if they should invest today in gold or not.

I want to invest in the future then how much?

If you have some suggestions related to this video or related to the channel

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till then keep learning, keep earning, and be happy as always.