Published: 14 Sep 2021

How gold can play an important role in your retirement plan?

old couple with coin stack

Retirement marks the end of your active work life as your regular income ceases to flow in. From this point onwards, you rely mostly on your savings, investment, and alternate income sources (such as rent from property) to meet your expenses. With an average retirement age of 60, you have a good number of years to plan for and investing in gold can help you do this. 

Investment portfolio for a retirement fund

One may be concerned about how fixed-income investments would perform in the face of rising inflation. Market-linked investments can address some of these concerns by cashing in on the market growth. On paper, a debt-equity mix of your investment portfolio seems balanced enough to build your retirement fund. However, adding gold to your portfolio can help you in the long run. Here’s how: 

Why is gold important in retirement planning?

Avg ann return chart

Long-term return: In the long run, gold has outperformed many other asset classes in terms of Average Annual Return over 10 years (31 December 2010 to 31 December 2020). Gold has performed better than Cash, S&P BSE India govt. bonds CRISIL Corp Bonds and Bloomberg Commodities Index especially over the last 5 years. Over the last two years, gold has also managed to also overtake S&P BSE Index, gaining an almost 8% lead over the latter. Therefore, investing in gold early on can give you greater returns and help you with your retirement planning.

Inflation hedge: Since 1981, gold’s Average Annual Return (AAR) of 10% has been ahead of India’s Consumer Price Index during the same period. Traditionally, gold has outperformed inflation, thus acting as an inflation hedge. However, this only works in the long run as market volatility can cause fluctuations in gold prices in the short periods. Retirement planning, being a long-term exercise, should include a portion of investment in gold for its reputation as an inflation hedge. 

Safety and diversity: Gold investment adds both safety and diversity to your portfolio. While investments such as stocks could rise or fall based on market conditions, gold is a relatively safe asset. For a portfolio that has risky investments and needs a balance in terms of low-risk assets, gold could be the perfect option as it acts inversely to most asset classes. It can safeguard a fall in your equity value as it almost always appreciates when stocks fall. For instance, during the 2008 financial crisis, gold rose by 48% in just over a year, even as share indices fell by 56%. 

Falling interest rates of fixed-income investments: Popular fixed-income investments have seen a sharp fall in yield in recent times due to the pandemic. The interest rate on PPF used to be 12% during 1986-2000 but has now fallen much lower to 7.1%.  This elevates the position of gold as a more profitable long-run investment option for your retirement planning. 

Liquidity: In India’s Multi Commodity Exchange, gold worth over Rs. 61 billion is traded daily. It is a liquid asset that can be traded and sold easily. Therefore, having some amount of gold in your post-retirement wealth, be it     physical or digital form, can also come in handy if you face a cash crunch. This can also help out with emergencies if one was to arise.

Inheritance and gifts: If you amass a sufficient retirement fund, you might want to pass on a portion of it as an inheritance. Gold inheritance (in its physical form) is not taxable, and inherited gold can become an important part of the financial legacy you leave for your family. Besides, with sufficient gold at your disposal, you can gift gold to your dear ones. This will make sure that they not only inherit your gold but also embrace the culture of gold investments.

While planning for your retirement, it is important to start saving from an early age. It gives you a larger time frame to enjoy the yields of your investment and compound the interest growth of your retirement corpus. The longevity of your investments and their yield margins are crucial in the growth of this corpus. By investing in instruments that can beat inflation and offer long-term reliability, you can maintain your lifestyle even after retirement. By adding gold as a portion of your savings, you can achieve the goals that you set out to achieve with your retirement planning.