No one picks up a bay leaf or a star anise or a cardamom to eat. No one would consider them tasty. However, try making a biryani without them, and you’ll know how critical these spices are to a dish like biryani. It’s cliched, but these spices add up to more than their sum in a dish like biryani.
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A diversified investment portfolio is similar. You may not quite like the individual assets on their own, but you may still hold them if an asset combination is more stable or enhances growth.
Back in 2021, I looked at gold in isolation and decided that it wasn’t a great asset to invest in. In 2024, I learnt that 2 risky assets can be combined to make a portfolio that’s less risky than either of those assets! I also learnt how incredible an asset gold is when combined with equity and bonds. These learnings have led to me to change my stance.
I still cannot embrace gold 100% because it’s a speculative asset. Gold investors make money only when other investors are willing to pay a higher price for the same gold. But it’s hard to ignore the stability and growth potential that a tinge of gold adds to a portfolio.
When I think of my portfolio as a composite (that has X% equity, Y% bonds, etc.), it becomes easier to have an allocation to gold—similar to adding bay leaves and star anise to a biryani. The final output, the composite, is more important than the individual ingredients that make up the composite.
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Thinking of portfolios as a cooked food item also makes it clear why regular rebalancing is very important. If your dish has too much salt or too little water, you don’t just ignore it. You intervene. You bring the ingredients back to an acceptable proportion. You don’t let one ingredient spoil the entire dish. The same is true for portfolios: you don’t let one asset become too heavy or too light, lest that one asset spoils the balance of the entire portfolio.