Comparison of Asset Classes: Equities, Gold and Real Estate !!!

Understand how to create a balanced portfolio using different asset classes

When it comes to investing, the first question that comes to mind is - "Invest in what?" Every investor has his or her own appetite for risk and any rash and untimely decision can prove to be costly. This is because you need to choose from several asset classes having varying degrees of volatility and risk-return potential. Therefore, one has to weigh the pros and cons before zeroing in on an asset class to invest in. 



Comparison of Asset Classes: Equities, Gold and Real Estate 

A conventional investment portfolio of an Indian investor contains gold, real estate, fixed income products and very little equity or equity-linked products. 

Here is a comparison of the three main asset classes: 

Coming to the original question, the relationship between these assets. I concur with the other answers that the relationship between these assets is quite complex. They react to a change in the other in a variety of ways. Let us change one of them to see its effect on the other three. 

1. If the future expectations of the global economy are bad, people run to the safety of the US Dollar and Gold and sell stocks. The price of gold rises, the value of dollar rises against the Rupee. FII's and FDI's pull money out of the Indian stock market causing it to decline.
2. When the price of dollar rises, oil prices increase for India. This puts strain on the economy as inflation increases with energy costs. Because of high inflation people invest more in gold and less in stocks causing the stock markets to fall.
3. When the price of oil decreases such as the case now, energy costs reduce. This reduction may or may not cause an effect on the others. Ideally, this will reduce the costs of energy, we will spend less Dollars buying oil and the Rupee will strengthen. [3]
4. When the price of dollar goes down, price of oil goes down reducing energy costs. Repeat point 3.

There are many other permutations of how one would react to the other but as a rule of thumb,

• Gold and oil are positively related. A rise in oil prices is an indication of bad times and gold prices rise correspondingly.

• Gold and stocks are negatively correlated. If stocks go up, gold goes down and vice versa.

Interest Rate (goes up): USD (goes up), Stocks (go down), Bond market (goes down), Gold (goes down), Oil (goes down)

Interest Rate (goes down): Real Estate (goes up), Stock Market (generally goes up)

USD (goes up): Crude Oil (goes down)

USD (goes down): Gold (sometimes goes up) 

Kindly Note : All ideas and materials presented herein are for informational and educational purposes only, and is not intended for commercial or trading purposes. Neither does it mean to misguide anyone. Kindly make informed decisions on your own risk. Neither livettcelearn.blogspot.in website nor any of its owner shall be liable for any errors or delays in the content or for any actions taken in reliance thereon.