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Why Investing in Gold for an Emergency Fund is a Good Idea

Team Jar
October 27, 2022
Why Investing in Gold for an Emergency Fund is a Good Idea

Despite its long historical background, Gold investments still shine the same way and are still one of the safest investments ever. Check out how Gold is relevant for your emergency fund.

In the world full of instabilities, your existing financial security can be like a house of cards. No one can tell when an economic storm will come and blow away all your wealth. In times when you aren’t sure about how you can shield your financial health from such shocks, you should build an emergency fund.

What is an emergency fund?

As the term itself suggests, it is a type of fund especially designed to neutralize the effect of stirs caused by sudden financial instabilities. Financial instabilities are situations that disrupt your regular saving and earning habits, and can prove to be quite stressful for your financial health. 

What are some of the components of an emergency fund?

Usually, an emergency fund would include regular savings, investments in different types of funds, like mutual funds and insurance policies, etc. All these hedge us against financial risks and are necessary to ensure the uninterrupted supply of basic necessities to you and your dear ones in tough times. 

There are various types of emergency funds, depending on your investment and saving habits, your income level, and your basic spending levels. You can customize your emergency fund any way you want by making sure that it is enough to supply you with a minimum of 6 months of basic necessities. You can even segregate your emergency fund for different needs. For example, you can create different funds for health emergency funds and a fund for different regular needs. This way, you will be able to even out your savings and achieve your savings targets quite easily. 

Since an emergency fund will be entirely under your control, you can also add versatility to your emergency fund portfolios. For instance, you can include risky ventures like equity mutual funds along with secured investments in Gold funds. This mix, if successful, will reap you high benefits, and your emergency fund will bear the sweetest fruits within a short span of time. Also, a secured Gold investment will neutralize the risks of an equity fund. 

Why is Gold a good investment option?

Gold has great significance due to its ability to hedge us against inflationary risks and is even traditionally considered to be one of the safest assets to invest in. In its thousands of years of history, Gold has never lost its relevance in people’s financial portfolios. Especially in India, be it wedding season or a simple auspicious occasion, this yellow metal always stands out! Even after so many years, no other asset compares to Gold. It continues to be quite a relevant investment option in this modern era. Needless to mention, Gold has evolved itself over the years. Today, investments in Digital Gold are gaining popularity  through various online platforms like Jar, and even the traditional Gold jewelry market still stands strong, specifically in India. To know more about Digital Gold and why it is a healthy investment choice, read this article!

Gold and the Emergency Funds: Are They Better Together?

In India, it is a common belief that every time you feel the need for liquid currency, the Gold jewelry in your lockers will always come to the rescue. Many of us either might have been in situations where accumulated Gold jewelry saved us in financially dire situations, or must have seen situations like these in movies or daily soaps. Undoubtedly, Gold lies deep in the hearts of uncountable Indians.

But can Gold shine equally bright even for an emergency fund? Let's find out!

Generally, Gold is considered to be a safe-haven investment option. Even during times of turbulence in the market, Gold manages to maintain its value (its value even increases sometimes since demand rarely touches the bottom). This yellow shiny metal gives moderate to high returns even during high inflationary tendencies in the economy. Gold investments are super liquid too. 

1. Liquidity of Gold

Liquidity refers to the ability of any asset to be converted into liquid money to be used readily. When it comes to this factor, as previously stated, Gold is very liquid. An easy path to liquifying your Gold can be through digital routes like investments in Gold ETFs, Gold Mutual Funds, etc. that can be readily sold and converted into cash. 

Hence, in times of emergency, you can get cash at hand just by simply selling your Gold or your Gold investments directly to the authority concerned. 

2. Price stability of Gold

One of the significant ways to check if your Gold investments can ever fall short for your emergency funds is by checking how volatility affects Gold prices. 

It has been observed that Gold prices get affected much more in shorter periods of time compared to longer periods —  over longer periods, they stay very stable. As per this study, it was evident that when Gold prices were observed for a month, the negative returns stood at 53%, whereas for a year, the negative returns stood at around 28%. Increasing the time period can make the fall in instances of losing money equal to 0. 

People looking for short term returns are therefore reluctant to invest in Gold, and consider investment in other ventures such as Liquid Deposits or bank deposits. Ultimately, whether or not you choose Gold for your emergency fund also depends on your time horizons. If you are searching for investment options best suited for short terms, check out this article!

3. Stable returns from Gold investments

Investment in Gold generally reaps stable returns. This is because of the seldom low demand of Gold in India. Even if the demand goes down due to high prices or supply disruptions, it eventually recovers during festivities. 

Even though there are some uncertainties in Gold prices over different time horizons, Gold is still a safe investment option when considering it for an emergency fund, given its stable returns and high liquidity.