Gold prices reached record highs in the past year driven by global uncertainties and central bank purchases. So, if you had invested in gold mutual funds, you now probably hold a higher gold allocation than originally planned. In such cases, rebalancing helps you trim excess exposure and redirect funds to restore the intended portfolio balance.
But how do you go about it?
The easiest rule to follow is the 10% gold rule. In this article, we assess how you can rebalance your 2026 portfolio with this 10% gold rule.
Table of Content
What is the 10% Gold Rule?
The 10% gold rule refers to a common thumb rule popularised by wealth managers and personal finance guide. It simply states that investors should ideally maintain a 10% gold exposure in their long-term portfolios. The idea here is to have a potentially balanced portfolio that spreads investment risks across various asset classes like commodities, equities, and debt.
However, it is important to note that while many global asset management frameworks promote the 10% gold rule for diversification and hedging, this is not a one-size-fits-all rule. It depends on your investment horizon and risk appetite. So, if you’re investing in gold mutual funds, your allocation to the same will be tailored on the basis of these factors.
Here’s a more realistic illustrative asset allocation matrix that may help:
| Investor Type | Illustrative Gold Allocation | Chief Objective |
| Conservative | 10% | Capital safety |
| Moderate | 5%-10% | Balancing portfolio stability with growth |
| Aggressive | 5% | Inflation hedge and volatility buffer |
Disclaimer: The above table is for purely for information and illustration purpose. Please do not construe it as a recommendation or any type of advice.
What is Rebalancing Your Portfolio and when is it needed?
Portfolio rebalancing is the act of adjusting asset allocation in your investment portfolio to ensure that it suits your risk tolerance and investment objectives. This involves:
Redeeming certain assets
Reinvesting in other assets
You can approach portfolio rebalancing in one of the following ways:
Calendar-Based: You rebalance at fixed intervals (annually, semi-annually, or quarterly).
Threshold-Based: You rebalance when allocation to a particular asset moves more than the preset limit (typically 5%).
Hybrid: You evaluate at fixed intervals but only rebalance if the allocation drifts beyond the preset limit.
Why use Gold to Rebalance Your Portfolio?
If until now, your portfolio was limited to equities and debt, you can consider adding gold while rebalancing it for 2026. You can consider investing in gold ETF and other gold-related assets because:
Gold acts as an inflation hedge and store of value, helping you preserve your purchasing power when inflation is high.
Gold can help add diversification to your portfolio and manage volatility due to its low correlation with other assets like equities and bonds.
Gold is also a good crisis protection cushion since the value of gold typically tends to rise during periods of geopolitical tensions and wars.
Ways to add Gold to your Portfolio (without adding physical gold)
Physical gold was the preferred way of investing in gold earlier. But this method had several drawbacks like safety concerns, purity issues, and storage problems.
Today, you don’t need to buy physical gold jewellery or coins to invest in gold. You can now rebalance your portfolio by investing in gold ETF fund of funds, gold ETFs
Here’s a list of ways you can rebalance your portfolio in 2026 with gold:
1. Gold ETFs
Gold ETFs are passively managed funds that invest in gold. They track the price of physical gold in the domestic market and aim to offer returns in-line with these prices, subject to a tracking err
Here’s what you need to know about gold ETFs:
2. Gold ETF Fund of Funds
Gold fund of funds are open-ended mutual fund schemes that invest in gold ETFs. These gold ETFs are backed by actual gold that holds high purity (99.5%) gold to track changes in the domestic price of the precious metal, subject to a tracking error.
Here’s everything you need to know about investing in gold ETF fund of funds schemes:
Disclaimer: Investors are requested to note that they will be bearing the recurring expenses of the fund of funds scheme, in addition to the expenses of underlying scheme in which the fund of funds scheme makes investments.
Step-by-step guide: How to rebalance your portfolio based on 10% Gold Rule
Regardless of whether you want to pick gold ETF fund of funds or gold ETFs for rebalancing, understanding how to go about is equally important. That’s why we’ve listed a simple step-by-step guide on how to rebalance your portfolio:
Step 1: Review Your Portfolio Annually/Semi-Annually
Review your portfolio annually or semi annually or any other preferred frequency to see how it is performing. Track how each asset class performs during this time and check if your asset allocation has moved away from the original set-up.
For instance, if equities rallied last year, your portfolio may have drifted to become equity-heavy. Typically, experts suggest to rebalance portfolios if your mix moves more than 5% from your original allocation.
Step 2: Check Your Gold Exposure
If you have already invested in gold ETF fund of funds/gold ETFs or have SIPs running, evaluate the total value of these investments in gold. Convert them into a ratio of your overall portfolio value and see how much exposure of gold you currently have.
Upon review, you will likely see one of two things. Either:
Your gold exposure will be above 10%
Your gold exposure will be below 10%
Step 3: Take Action
Consider these steps once your assessment is complete:
Above 10%: If your exposure in gold is above the general 10% threshold, consider selling overweight assets. Try to reallocate funds to equities/debt (based on your goals, risk tolerance, and target asset allocation).
Below 10%: If you haven’t yet included gold into your portfolio or your exposure to gold is below the 10% limit, consider boosting this allocation. You can consider options like gold ETF FoF funds and gold exchange traded funds that invest in gold for this purpose.
Please note that rebalancing your portfolio is not a one-time action. You need to do it periodically, alongside monitoring the performance of your investments.
Common mistakes to avoid when adding Gold to your portfolio
Here are a few common mistakes you should avoid when adding gold mutual funds or any other gold-based asset to your portfolio:
Chasing gold mutual fund returns: Buying when the markets are high and selling when there’s a price swing can lead to missed opportunities. Definite rules like the 10% gold rule may be a better option in such cases.
Ignoring cost differences between various gold products: The investment costs you incur can impact your total returns. For instance, gold ETF fund of funds typically have a higher expense ratio than gold ETFs because they will be bearing the recurring expenses of the fund of funds scheme, in addition to the expenses of underlying scheme in which the fund of funds scheme makes investments.
Allocating to gold excessively without considering risk: This can lead to increased volatility. Remember that the 10% gold rule is indicative and can (and should) be tailored to your risk tolerance.
Failing to contextualise rebalancing: Please remember that rebalancing your portfolio for gold also means reviewing and correcting other asset imbalances. So, check if your equity and debt allocations also need change and make buy/sell decisions accordingly.
Conclusion
So now you know how to rebalance your 2026 portfolio with the 10% gold rule. All you have to do is:
Review your portfolio
Check your current gold exposure that includes gold ETF fund of funds, gold ETFs, etc.
Redeem or invest more depending on where your allocation stands vis-a-vis the 10% rule
But do remember to tailor the 10% rule to fit your investment horizon, risk appetite, and goals while rebalancing. This way, you can use a specific guideline to avoid random buys/sells, while still remaining true to your investment needs.
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