Bought Gold, Lost Money: Very Happy.

22 MARCH 2021

There are times when you take money out of your wallet - or swipe your debit and credit card - to buy something and are happy that whatever you bought turned out to be not as useful as you thought it would be.

Take the example of life insurance.

People don't give money to buy life insurance and then wander off to die.

No: people buy life insurance because their real desire is to live but, knowing we have no control over how long our heart may beat, we pay a hefty premium on life insurance for that final eventuality of death.

Do you wake up every morning to the reassuring fragrance of filter coffee, lemon ginger tea, or a mango lassi and curse that you are still alive? Do you bang your head on the wall wondering why you paid money for a life insurance policy?

Buy gold - and wish you are wrong!

Gold is insurance. There are two reasons to have gold in any portfolio:

  1. Insurance against a weak Rupee, and
  2. Insurance against a meltdown in stock markets and the value of your equity mutual funds.

Since 1966, the Indian Rupee has lost 2.5% each year for the past 55 years. If you have an obligation in US Dollars (or other "hard" currencies) because you plan to send your children to study outside India - or plan holidays for the family - gold is a good insurance against paying more Indian Rupees to consume that same amount of education or vacation.

Gold is also and insurance for your equity mutual fund portfolio. We will be marking the first anniversary of the national lockdown of March 24, 2020 against the COVID-19 virus.

Recall what happened since February, 2020 when the China virus gripped the world?

Here is a graph to remind you: After scaling successive peaks at the start of the calendar year 2020, stock markets crashed by March 23, 2020. The 3 actively managed equity mutual funds which I have in my portfolio: the Quantum Long Term Equity Fund, the Quantum India ESG Fund, and the unique Quantum Equity Fund of Funds (which passes on the money invested to 6 other equity mutual funds managed by other fund houses), all collapsed in varying degrees registering losses of between 28% and 32%. No one knew what would happen next! (Believe me; we still have no clue of the end date of the pandemic!)

My portfolio also has gold from (who else? I helped start the company!): Quantum Mutual Funds.

The Quantum Gold Savings Fund did not enter negative territory from the start of 2020 even though the price of gold did decline initially.

Gold prices declined in the early days of the pandemic probably because speculators may have borrowed money to buy gold in the global markets and then had to sell down their gold to pay margin money for other bets that may have gone terribly wrong.

But gold bounced back very quickly - just as it did at the time of the Lehman bankruptcy during the Great Financial Swindle of 2005-2007. Gold acted as the life insurance for your dying equity portfolio.

Graph 1: Gold buys you peace, stocks give you wealth.

As central banks and governments began rescuing societies and slashing interest rates to keep their economies from crumbling, stock markets began to surge and recover lost ground. By the end of the year 2020, the optimism over the discovery and launches of vaccines and some visibility towards a return to a normal life by 2021 or 2022, led stock markets to establish - then break - successive records.

Gold, on the other hand, began to see headwinds as fears of higher interest rates (remember the speculators?) could have resulted in some profit booking. Furthermore, with many younger people preferring crypto-currencies like Bitcoin over gold, there are fears (incorrect, in my view) that gold may lose its relevance in time of panic as a "safe haven", as insurance.

Despite these wild and unpredictable movements, the "12 - 80 - 20" suggested allocation when implemented - with modifications to match your specific situation - should have given you the comfort to know that your financial security was not at risk and, instead, focus on the health and safety of your family.

To recap the extended form of the "12-80-20" formula,

  1. the "12" represents the monthly expenses you incur x 12 months (I prefer 24 months but this is up to each individual) which is to be kept in the Quantum Liquid Fund or in a bank account;
  2. the "80" represents the balance you have left over (after the money kept in the Quantum Liquid Fund) x 80% which has to be kept in equity mutual funds (70% of the 80% in Quantum Equity Fund of Funds, 15% in Quantum Long Term Value Fund and 15% in Quantum India ESG Fund); and
  3. the "20% represents the 20% allocation to gold.

Be in peace!

So, consider this:

  1. Your savings pool is Rs. 10 lakh.
  2. Your monthly expenses are Rs. 50,000.
  3. Your safety net is 12 months expenses (mine is closer to 24 months - you select your comfort zone to ride out strange times like COVID-19).
  4. This means you keep Rs. 50,000 x 12 = Rs. 6 lakh in bank accounts or Quantum Liquid Fund - don't seek returns on this as this is safe money to be used by you when you need it.
  5. The balance is Rs. 10 lakh - Rs. 6 lakh = Rs. 4 lakh.
  6. Of this Rs. 4 lakh you have invested 80% in the 3 Quantum Equity Mutual Funds,
  7. Of this Rs. 4 lakh you have invested 20% in Quantum Gold Savings Fund.
Portfolio How much? Amount % of total
Bank account 3 months 150,000 15.0%
Quantum Liquid Fund 9 months 450,000 45.0%
then, 80% Equity and 20% Gold 400,000
Quantum Equity Fund of Funds 70% of 80% 224,000 22.4%
Quantum Long Term Value 15% of 80% 48,000 4.8%
Quantum India ESG 15% of 80% 48,000 4.8%
Quantum Gold Savings Fund 20% 80,000 8.0%
Totals 1,000,000 100.0%

Now let's see how this performed over the stressful period from the pre=pandemic era of January 2020 right through to the lockdown news in March, 2020.

Summary Allocation INR Jan 1 2020 to March end, 2020
Safe Money 6,00,000 Marginal interest, Rs. 6,00,000
Equity 3,20,000 Gain -30%, Rs. 2,24,000
Gold 80,000 Gained +30%, 1,04,000
Total Rs. 10,00,000 Rs. 9,48,000.

Okay, so during the worst pandemic since the Spanish Flu with collapsing economies and massacred global and local stock markets, your portfolio suffered a loss of Rs. 72,000 (Rs. 10 lakh corpus - Rs. 9,28,000 portfolio value). No one likes to lose money but a loss of Rs. 72,000 or 7.2%?

Yes, you could focus your time and energy on ensuring the safety and health of your family because your portfolio was neither shaken nor stirred.

But wat if you had bought gold for the first time on August 7th 2020 when gold was at a peak price and you are now losing 20% on this "bad" investment?

Smile: Because your investment in mutual funds is up between 29% and 38%.

Do you get rid of your life insurance because you had a great day at the beach, in the hills or just being with family and friends?

No, you keep the life insurance policy active.

As an aside, it makes sense to reallocate your portfolio across asset classes over a few months so you are not in the position of being unlucky and buying gold at the peak price or selling shares at the lowest price. That is why a Systematic Investment Plan and a Systematic Transfer Plan are good innovations to help you nudge your portfolio in the right direction.

Graph 2: Gold gave you anguish, stocks gave you wealth

If you had built your 12-80-20 portfolio on January 1, 2020 and gone to sleep for 15 months and then woken up in March 2021, your portfolio would look pretty good.

Summary Allocation INR Jan 1 2020 to March 19, 2021
Safe Money 6,00,000 +4%, Rs. 6,24,000
Equity 3,20,000 Gain +22%, Rs. 3,90,400
Gold 80,000 Gained +13%, 90,400
Total Rs. 10,00,000 Rs. 11,04,800.

That gain of Rs. 1,04,800 (+10.5%) is very good considering that you had a reservoir of your safe money to tide over unforeseen circumstances, like COVID-19.

The lesson from this exercise is to ensure that you always have some gold in your portfolio and - by using the building blocks offered by Quantum Mutual Fund (I am the Founder of the Sponsor)) - you can reduce the headaches and aggravation caused by wild market movements and focus on things that really matter in life: the filter coffee, the lemon ginger tea, and the mango lassi!

Suggested allocation in Quantum Mutual Funds (after keeping safe money aside)

Quantum Long Term Equity Fund, Quantum Equity Fund of Funds, Quantum ESG India Fund Quantum Gold Fund
Quantum Liquid Fund
Why you
should own
An investment for the future and an opportunity to profit from the long term economic growth in India A hedge against a global financial crisis and an "insurance" for your portfolio Cash in hand for any emergency uses but should get better returns than a savings account in a bank
Suggested allocation 80% in total in both; Maybe 15% in QLTEF and 75% in QEFOF and 10% in Q ESG 20% Keep aside money to meet your expenses for 12 months to 3 years
Disclaimer: Past performance may or may not be sustained in the future. Mutual Fund investments are subject to market risks, fluctuation in NAV's and uncertainty of dividend distributions. Please read offer documents of the relevant schemes carefully before making any investments. Click here for the detailed risk factors and statutory information"
Disclaimer: The Honest Truth is authored by Ajit Dayal. Ajit is Founder of Quantum Advisors Pvt. Ltd. which is the Sponsor of Quantum Asset Management Company Pvt. Ltd – the Investment Manager of the Quantum Mutual Funds. Ajit is also the Founder of Quantum Information Services which owns Equitymaster and PersonalFN. The views mentioned herein are that of the author only and not of Quantum Advisors, Quantum AMC or Equitymaster. The information provided herein is compiled on the basis of publicly available information, internally developed data and other sources believed to be reliable by the author. The information is meant for general reading purpose only and is not meant to serve as a professional guide / investment advice for the readers. Readers are advised to seek independent professional advice and arrive at an informed investment decision before making any investment. Whilst no specific action has been suggested or offered based upon the information provided herein, due care has been taken to endeavour that the facts are correct, accurate and reasonable as on date. None of the Author, Quantum Advisors, Quantum AMC, Equitymaster, their Affiliates or Representative shall be liable for any direct, indirect, special, incidental, consequential, punitive or exemplary losses or damages including lost profits arising in any way on account of any action taken basis the data / information / views provided in The Honest Truth.

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5 Responses to "Bought Gold, Lost Money: Very Happy."


Mar 25, 2021

There is one structural problem. The middle class of India is shrinking witch is the biggest consumer of gold in the world. This has never happened since Independence. On investment side other options also emerged like cryptocurrencies.


Ajit Dayal

Mar 23, 2021

Dear Mr. Kumar: Thank you for your diligence in pointing out the fat finger (or drowsy mind!) in my error on the calculation for returns. The table and text has since been corrected without altering the spirit of the article.


Ajit Dayal

Mar 23, 2021

Dear Mr. Ramesh: you are right! Quantum does have the Quantum Multi Asset Fund which is a "leave-it-to-QuantumMF" allocation solution where the investor does not have to worry about when to make allocation switches between asset classes. The one-click solution works well for those looking to park the “80:20” part of their savings for 3 years or more and wish to seek an opportunity for earnings higher returns than a traditional 3 year Fixed Deposit with a bank.


Vinod Kumar KP

Mar 22, 2021

Hi, There is a mistake in the calculation. For an investment of Rs.80,000 in Gold with a gain of +13%, the amount should have been Rs.90,400 instead of Rs.1,70,400 as shown in your calculation.

Thanks and Regards,
Vinod Kumar KP


Ramesh B

Mar 22, 2021

respected sir,
Quantum has already a good product which is mix of eqty and gold (and debt).
noreference of it!!??!!

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