The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: tomsang on March 06, 2013, 12:18:28 PM
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I understand that Gold is a key component of the Permanent Portfolio, but I am having a hard time understanding why it is or why it should be. The value of gold is derived primarily due to people clamoring for a shiny object. The price has been derived due to a belief that it is a great hedge against inflation, that it is a secure currency, that it will continue to be in demand, that it is special, etc. These types of beliefs seem like they would be in the category of being Anti-Mustachian, unless they are based on factual economic fundamentals. To clamor to a shiny object, without it being valuable in generating dividends or products that are more profitable are challenging and not sustainable. Yet, Gold has been a sustainable metal for thousands of years. Does the past, predict the future and if so will it be important for the next 60 years. Gold has had a turbulent two years, but where will gold be in the future and why?
http://goldratefortoday.org/supply-demand-gold/
From looking at the chart of production and demand, it is evident that demand for Electronics, Other Industry and Dentistry is flat at 419 tons used in 1997 and 420 tons used in 2010. Jewelry even dropped from 3,294 down to 2,060. Which is a sizable drop. The big demand has been in Coins & Bars, ETFs & Sim. which are speculative in my book. That went from 452 tons in 1997 to 1,333 tons in 2010. With the high price over the past few years you have all the old mines coming back online, new mines coming online, individuals actually panning for gold, TV shows Bering Sea Gold, Goldrush, etc. encouraging the supply to jack up. With the true demand for gold that is actually used staying flat at 420 tons vs. 419 tons in 1997, it seems like there could be a problem in the future.
From talking with my father (75 years old), there is a lot of sentiment about the virtues of gold. How it has been around for thousands of years, etc. From talking with my kids who are 10-15 in age, the glamor of gold is very small. Jewelry on kids is less than it was when I was a kid, and the desire to invest in Gold may be different than when I was a kid. Is there a change occurring or are these normal fluctuations? I know India and other countries value gold jewelry and their ability to acquire gold is growing, but will it continue to occur over a long period of time. Will gold become like the Tulip or Stone Wheel in terms of currency? Another, funny story about how people valued something that has limited value or will it continue its reign as a valuable commodity.
With the bizarre political scene going around over the past number of years, you had people clamoring for Gold and Guns. As people, realize that the economy is improving, the stock market continues to perform well, companies continue to report record profits, etc. it seems like people are going to start questioning why they are holding on to a piece of metal that they have to insure, protect or worry about. That lustrous gold looks a bit dull when it is not the answer to their financial dreams. Don't get me started on what is occuring to the earth to acquire gold....
Should rare-earth magnets, titanium, Indium, Rhenium, Palladium, Platinum, Rhodium, or others be part of the Permanent Portfolio of the future? Many are much more useful than Gold in today’s technology and look to be very valuable in the future technologies?
I figured that Mustachians would point me in the right direction regarding gold and it’s place in the Permanent Portfolio.
Thanks for your help,
Tom
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Let's get this out of the way first: I am no financial wizard.
I sort of like gold. Not because it is shiny, but because (relatively speaking) it is a hard/real asset and is somewhat rare. It has value to a wide audience.
BUT! While I think it's a decent, stable investment, I am not convinced that it is right now. The doomsdayers that are stocking up on gold for "when the big one crashes" have run the price too high. If I had a significant cache of it, I'd probably be selling some chunk of that cache.
I'm relatively sure that if the big pile of poo hits the really big fan and we're all driving around like Mad Max in a post apocalyptic world -- the amount of gold that would increase my survival from days to years would be astronomical. The amount of ammo and coiled barb wire to protect it would be astronomical as well. I'm going to just bet that "it'll work itself out" or "if things slide a bit, the entire world isn't going to go straight to hell".
But again: I'm no wiz.
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My two cents: it's a good currency (https://forum.mrmoneymustache.com/investor-alley/physical-gold-and-silver/msg63199/#msg63199). You can either view it as a more-or-less stable asset that keeps pace with inflation in the long-term, like real estate (NB I haven't seen data that confirms gold behaves this way, but I think it's somewhat reasonable to believe it), or you can view it as a hedge against total Mad Max economic collapse.
Neither of these seem very Mustachian to me. Your stash should be providing passive income, and in the first justification gold does not do this. You would be better off owning TIPS, which at least throw off a tiny amount of return. The second justification is not Mustachian because Mustachianism, in my view, is inherently bullish and optimistic regarding the future, and trying to mitigate long-term risk/uncertainty usually costs too much ("safety is an expensive illusion"). There is maybe a 0.1% chance of sudden, global economic collapse in a given year (if you wanted to be pessimistic, you'd say 1%, but that has no historical basis). Hedging for this possibility wastes a significant amount of returns, and it's not clear that it actually benefits you in the scenario you're hedging for anyway.
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Cribbing some helpful quotes from the excellent book "The Permanent Portfolio" by Craig Rowland and J.M. Lawson:
"Gold is probably the oldest form of money in the world that has been in constant use. Since gold is viewed as a form of money [My note: if you think it's just a shiny metal, look at how much the central banks store in their vaults] it competes with other paper money. When inflation threatens a currency, the value of gold will rise. Gold doesn't change over time and a government can't print more gold when it starts to run low on funds. ... In terms of purchasing power protection, gold has a long track record of preserving wealth that is unmatched."
"Even though gold doesn't generate interest or dividends, it can produce capital appreciation (price goes up), and those profits can be harvested and used in a balanced and diversified portfolio to produce real returns. Nobody cares how your portfolio grew in value. It can be interest, dividends, or capital appreciation of gold. The growth is still counted the same no matter what."
Basically, the difficult thing to understand with gold is that no, it certainly doesn't act like other investments but that's why it's a good diversifier. If it generated dividends and multiplied into more gold coins, that would totally defeat the purpose of how it hedges against inflation. A portfolio holds gold because in times of high inflation, stocks, bonds, and cash lose value while gold gains value. When your gold rises in value, you then sell some to buy more stocks and bonds that do generate income on their own.
So no, I don't believe gold is anti-mustachian at all. It's simply a diversification tool, and used properly it can help protect your hard-earned stash in times when stocks and bonds alone can struggle.
As an aside, if you'd like to learn more about the PP, the best web reference by far is crawlingroad.com and the associated forums. They can offer much more detailed answers to any questions you have.
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I'm not a fan of the PP for early retirees (too much capital preservation, not enough growth to sustain a long retirement, IMO), but no, gold is not anti-Mustachian. I'm not even quite clear on what you mean by that.
How do you define anti-Mustachian such that gold is anti-Mustachian (in the same way mindless consumerism, polluting, etc. is)?
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How do you define anti-Mustachian such that gold is anti-Mustachian (in the same way mindless consumerism, polluting, etc. is)?
You could argue that mining gold is massively resource intensive and environmentally destructive. These assets would be better deployed building wind turbines or developing more efficient battery technology.
"Gold gets dug out of the ground, then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.” - Warren Buffet
As an asset, it will track inflation over time, with substantial short term variability (if it's real returns were anything but 0, it would eventually be of infinite or no value). It's moderately interesting as a hedge if you're going to monetize short term fluctuations through a fixed proportion asset allocation, but the long term investor is almost certainly best served by owning assets that both track inflation and supply an incremental real yield (real estate, stocks).
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As an asset, it will track inflation over time, with substantial short term variability (if it's real returns were anything but 0, it would eventually be of infinite or no value). It's moderately interesting as a hedge if you're going to monetize short term fluctuations through a fixed proportion asset allocation, but the long term investor is almost certainly best served by owning assets that both track inflation and supply an incremental real yield (real estate, stocks).
+1
The only other time I would encourage the buying of gold is as a currency during times of war.
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I got thinking about Anti-Mustachian and Gold based on a number of areas.
Environmental:
As mentioned by KingCoin, we are strip mining our planet to obtain a piece of metal that has limited utility and the value is based off of a shiny metal, vs practical use of that metal. There are numerous towns in China and elsewhere that are toxic, because they are trying to recycle the computers, phones, and other electronic devices to get the 50 cents of gold that is used in these items. Again, it appears from the article listed, the useful uses of Gold (Electronics, Dentistry, and other Industries) derives 11% of the use of gold, the other 89% is Jewelry, bars of gold and ETFs. So we are causing significant environmental damage with the primary purpose of having a shiny metal to hold, wear, touch, and since 2003 to look on a computer or statement that we own gold in an ETF or other investment form.
Supply vs. Demand:
As noted in the article the true useful demand has stayed flat over the 14 year period, supply has been increasing, and the price started to increase at the time that ETF’s started to take off. This is when the advertising for investing in ETF’s, gold bars, protect yourself from the administration started kicking in to high gear. Again, the amount of gold that is used in an income producing fashion was flat during that time, while production of gold was increasing. Yet, prices exploded due to people buying gold for investment purposes. This does not seem sustainable long term. Un-Mustachian to listent to the marketing hype vs. the facts on the amount of true gold consumption going up.
Utility of the Asset:
If gold is held in a physical form, one probably has some concern about protecting the asset from theft and loss. Insurance can be purchased at a price per year, guns and security systems can be beefed up, but again a mustachian way of life would indicate less worry over the assets vs. more. So again, seems a bit anti-mustachian. The asset is purchased typically at a premium over listed prices, it is sold typically at a discount over listed prices, and if you want to skip the middle man to eliminate those discounts then you are typically increasing your risk of loss of life or assets. Again, not a great liquid asset. Not what I would think would be the definition of a good mustachian asset.
If it is in electronic form, then I guess it is similar to a stock or bond in that you have to trust the system that it will be there when everything hits the fan. Except stocks and bonds are valued based on the expected net present value of future cashflows. Gold does not generate income, therefore it is an interesting asset to value Even the 11% that is used in useful production, it sounds like a portion of that is recovered through recyling fillings, computers, etc.
If the world hits the proverbial pile of poo, then I question the value of gold to feed, shelter and clothe your family. I would think the other mustachian skills would be much more valuable, like gardening, ability to hunt, build, sew, scavenge, etc.
Owning gold, reminds me of another post on the forum about spending $2,000 on a speaker. In that case many posters stated, “do not take 2,000 of your little employees and buy a tube Amp”, arebelspy, eloquently stated, “In the future, when someone complains that this community face punches too hard and too often, I'm going to use this thread as proof to the contrary.” The parallels to a speaker that someone enjoys using and listening to, that he believes will retain it’s value over time, and it sounded like was valued at used and discounted costs is in line with someone going out and buying an ounce of gold. Except the speaker can be enjoyed, I guess if someone likes looking at gold there is value there as well.
Owning an asset that does not produce an income stream, that’s usefulness is decreasing not appreciating, and that the value is based on it being shiny sounds like the stories of the stone wheels of Yap or the Tulips that were used as currency. Not a logical, investment for long term gains. As Warren Buffet, states, “What would the Martian’s Think?”
Just an interesting concept as I see Gold being discussed as an asset or a component of the PP. It always struck me as odd to have a piece of metal act as a hedge. As I mentioned in my earlier post, I could see people acquiring rights to metals that are going to be strategic in future technologies like rare-earth metals and as listed in original post. The duller the metail the more mustachian if it is useful:)
Thanks for all of your posts. I will research it further.
Tom
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You could argue that mining gold is massively resource intensive and environmentally destructive.
Well damn, I hope nobody here owns the s&p500 then (oil companies, mining companies, companies that create products out of destructively obtained resources, etc)
I also hope nobody has cash, which only value is people clamorous for pretty pieces of paper, and trust that the government won't print too much more.
(not advocating gold ownership, but I don't see it as antimustachian)
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Well damn, I hope nobody here owns the s&p500 then (oil companies, mining companies, companies that create products out of destructively obtained resources, etc)
The major difference is that these companies are providing products that add some value to humankind. Oil makes planes and cars go, copper makes pipes and wires, coal supplies us with electricity etc. You can argue that the negative externalities of these products outweigh their benefit and that we need to use them more efficiently and find better alternatives, but unlike gold mining, they do have a meaningfully positive impact on our daily lives.
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One can intellectually debate all they want why a specific metal has been viewed as money throughout human history. Most money in circulation today exists only as electrons on the Internet representing fully defaultable promises of one anonymous person made to another. Is that any more rational?
Or one can accept that gold has a unique place in the human psyche and can provide a powerful capital appreciation benefit in very specific economic conditions (inflation). Even today, central banks hold literally tons of the stuff in their vaults, and are acquiring more at record rates. So clearly the greatest financial minds in the world believe gold = money.
There's nothing crazy about owning gold, nor about choosing other investments you're more comfortable with. The PP holds it for a very specific reason, and there are mechanisms built in to make the best use of gold as an asset. One should have the same mindset about any investment they make.
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Well damn, I hope nobody here owns the s&p500 then (oil companies, mining companies, companies that create products out of destructively obtained resources, etc)
The major difference is that these companies are providing products that add some value to humankind. Oil makes planes and cars go, copper makes pipes and wires, coal supplies us with electricity etc. You can argue that the negative externalities of these products outweigh their benefit and that we need to use them more efficiently and find better alternatives, but unlike gold mining, they do have a meaningfully positive impact on our daily lives.
How are you defining value? Is all the stuff listed in the "useless crap" thread valuable? I guess if people buy it, you can say it provides value to society. Well people buy gold too.
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Well damn, I hope nobody here owns the s&p500 then (oil companies, mining companies, companies that create products out of destructively obtained resources, etc)
The major difference is that these companies are providing products that add some value to humankind. Oil makes planes and cars go, copper makes pipes and wires, coal supplies us with electricity etc. You can argue that the negative externalities of these products outweigh their benefit and that we need to use them more efficiently and find better alternatives, but unlike gold mining, they do have a meaningfully positive impact on our daily lives.
How are you defining value? Is all the stuff listed in the "useless crap" thread valuable? I guess if people buy it, you can say it provides value to society. Well people buy gold too.
There are also all sorts of industrial uses for gold that add value to humankind. Maybe not so much for jewelry... but that's not the only use.
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How are you defining value? Is all the stuff listed in the "useless crap" thread valuable? I guess if people buy it, you can say it provides value to society. Well people buy gold too.
Yeesh. I'm obviously not making the claim that all products are useful or neccessary, but how about the rubber in your bike tires or the metal in its frame if we want to take this into fully mustachian territory? Surely you recognize the difference between raw materials that serve some utilitarian end and those that only act as a store of value (i.e end up in a safety deposit box doing nothing). And yes, there are industrial uses for gold, but that's certainly not why it's trading at $1500/oz. If all oil refining stopped, the world as we know it would grind to a near halt. If all gold mining stopped? Maybe a rise in the price of gold and not much else. Arguing that people purchase gold and therefore it's de facto "useful" is splitting hairs in my opinion.
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How are you defining value? Is all the stuff listed in the "useless crap" thread valuable? I guess if people buy it, you can say it provides value to society. Well people buy gold too.
Yeesh. I'm obviously not making the claim that all products are useful or neccessary, but how about the rubber in your bike tires or the metal in its frame if we want to take this into fully mustachian territory? Surely you recognize the difference between raw materials that serve some utilitarian end and those that only act as a store of value (i.e end up in a safety deposit box doing nothing). And yes, there are industrial uses for gold, but that's certainly not why it's trading at $1500/oz. If all oil refining stopped, the world as we know it would grind to a near halt. If all gold mining stopped? Maybe a rise in the price of gold and not much else. Arguing that people purchase gold and therefore it's de facto "useful" is splitting hairs in my opinion.
You seem to be saying oil has some value (rubber tires, but not plastic chotchkees) and therefore it's mustachian to own oil companies despite the environmental impact. You also seem to be saying gold has some value (electrical components, but not jewelry), but it's not mustachian to own gold due to the environmental impact. Please split these hairs so that I can understand.
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You seem to be saying oil has some value (rubber tires, but not plastic chotchkees) and therefore it's mustachian to own oil companies despite the environmental impact. You also seem to be saying gold has some value (electrical components, but not jewelry), but it's not mustachian to own gold due to the environmental impact. Please split these hairs so that I can understand.
11% of of all gold sold is used in production of electronics, dentistry and other commercial uses. The other 89% is to make shiny bars, jewelry, and ETF hoardes for people to admire the shiny metal. I think if the number was 89% of gold being used in commerce to make items that are being used in society, then the answer may be different.
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We can argue whether or not it's all that great of an investment, but it sure isn't anti-mustachian. Gold should at least keep pace with inflation and is basically insurance against the collapse or devaluation of a fiat currency.
You might be right that other precious metals are worth buying. I think it depends on your purpose. It's possible metals like silver, platinum or palladium appreciate quite a lot due to increasing industrial demand (catalytic converters for about a billion cars in developing-nations, etc). However, gold to the layman very much is still the most popular and demanded precious metal. If you need to sell some bars in the midst of a panic, you're going to have a much easier time finding a buyer for an ounce of gold vs. an ounce of rhodium or palladium. If you're going to have a serious amount of metals, it wouldn't be unreasonable to diversify a little bit.
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I would say owning too much gold in your investment portfolio (say, more than 10%) is anti-Mustachian.
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I would say owning too much gold in your investment portfolio (say, more than 10%) is anti-Mustachian.
What if it's a short term trade based on technical analysis?
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I would say owning too much gold in your investment portfolio (say, more than 10%) is anti-Mustachian.
What if it's a short term trade based on technical analysis?
Well, that's entirely different!
I have a friend who has seemingly nailed every meaningful price move in gold for the past 6 years. He's currently loaded to the gills with GLD.
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You seem to be saying oil has some value (rubber tires, but not plastic chotchkees) and therefore it's mustachian to own oil companies despite the environmental impact. You also seem to be saying gold has some value (electrical components, but not jewelry), but it's not mustachian to own gold due to the environmental impact. Please split these hairs so that I can understand.
Are you really arguing that gold has functional utility anywhere near that of fossil fuels? Again, if oil disappeared the world economy would come to a screeching halt, and life as we know it would become very different (certainly substantially worse in the short to medium term). If gold disappeared, it wouldn't matter. We'd find some slightly less conductive material to put in our electronics and high end audio cables contacts.
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I would say owning too much gold in your investment portfolio (say, more than 10%) is anti-Mustachian.
What if it's a short term trade based on technical analysis?
Well, that's entirely different!
I have a friend who has seemingly nailed every meaningful price move in gold for the past 6 years. He's currently loaded to the gills with GLD.
:D
Thanks for the laugh, smedley. I appreciate your convictions.
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You seem to be saying oil has some value (rubber tires, but not plastic chotchkees) and therefore it's mustachian to own oil companies despite the environmental impact. You also seem to be saying gold has some value (electrical components, but not jewelry), but it's not mustachian to own gold due to the environmental impact. Please split these hairs so that I can understand.
Are you really arguing that gold has functional utility anywhere near that of fossil fuels? Again, if oil disappeared the world economy would come to a screeching halt, and life as we know it would become very different (certainly substantially worse in the short to medium term). If gold disappeared, it wouldn't matter. We'd find some slightly less conductive material to put in our electronics and high end audio cables contacts.
Well you seem to care about the environment as a measure of mustachianism ("You could argue that mining gold is massively resource intensive and environmentally destructive"). If oil dried up, and our economy came to a halt, that would be great for the environment. Cheap fossil fuel energy is what has enabled the rampant consumerism and waste that mustachians decry. The vast majority of equities out there propagate this through product development and marketing. Poor gold is just sitting there storing value, yet somehow it is considered anti-mustachian?
Edit: And by the way, although you seem to consider environmental destruction to be anti-mustachian, the local environment around mimes has no functional utility to me. Your argument implies that functional utility is the measure of mustachianism on a forum in which the readers are mostly pursuing non-functional goals (i.e., retirement).
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Or one can accept that gold has a unique place in the human psyche and can provide a powerful capital appreciation benefit in very specific economic conditions (inflation). Even today, central banks hold literally tons of the stuff in their vaults, and are acquiring more at record rates. So clearly the greatest financial minds in the world believe gold = money.
I'll just chirp in that this is not a good reason to own an asset. "Everybody else is buying it right now, therefore I will too" == bubble.
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I agree, Fixer. But I think you missed my point.
Gold has been a reliable form of money for all of human history. So it's not just a recent fad.
The PP holds gold at all times, whether it's popular or not. It serves a specific purpose for those who want inflation protection in their portfolios.
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Gold has been a reliable form of money for all of human history. So it's not just a recent fad.
It serves a specific purpose for those who want inflation protection in their portfolios.
Admittedly, it's been far more volatile in the recently due to a lot of speculation, so it's not as though purchasing today gives you a high probability of matching inflation unless it's held for a while.
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The PP holds gold at all times, whether it's popular or not. It serves a specific purpose for those who want inflation protection in their portfolios.
Gold has almost no correlation to inflation.
http://goldratefortoday.org/gold-inflation-relationship-correlation/
"First, the Wall Street Journal commissioned a study from the research firm Ibbotson Associates. According to their research, between 1978 and 2010 gold and the inflation rate have a correlation value of 0.08. This is nearly no correlation (on a scale ranging from -1 to 1, where 1 is perfect correlation, and -1 perfect negative correlation, and zero is the absence of a relationship).
Second, also Citibank comes in 2009 to the conclusion that “there is no obvious relationship between the gold price and inflation”. Sometimes the development of gold follows inflation, at other times there is an inverse trend or just on obvious pattern at all.
Therefore, it can be concluded that there is no, or only a weak, relationship between the gold rate and inflation levels."
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It's not simply a matter of inflation, but real interest rates. Discussing the nuances of federal reserve actions is just too inside-baseball for most people, so "inflation" is the simplest way to communicate the idea.
http://www.q1publishing.com/blog/viewblog/contentId/672
There's nothing anti-mustachian about gold. And nothing crazy about smartly using it as a portion of a balanced portfolio. Like any investment, you just have to understand why you use it and under what circumstances you will buy or sell. There's also nothing wrong with avoiding it if it's not your cup of tea.
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It's nice to see this discussion. Every currency in use is a fiction -- a very powerful fiction, but a fiction. Gold is just one more fiction among many. A dollar has a certain value because everyone who uses it agrees that it has this value. Every currency loses value over time, and every currency has a risk (however slight) of failure.
I'm amazed at people who have all of their savings as 1s and 0s on a computer. I wish I had their faith!
To me the beauty of the PP is the way it provides protection against one's own foolishness. Regardless of what the market is doing, you just hold your 4 assets, rebalance when necessary, and watch your stash slowly and securely grow.
I feel very good about gold right now. I just wish I could feel good about my long-term Treasuries! I have a 25% allocation in Treasuries, like I'm supposed to, but I feel very dubious regarding their continued worth.
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I'm amazed at people who have all of their savings as 1s and 0s on a computer. I wish I had their faith!
As opposed to... ?
Holding precious metals or gems? Cash stuffed under a mattress? Real property (the ownership of which is often just proven by 1s and 0s)?
How do you store your savings?
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Well, most of it is in 1s and 0s just like everybody else's. Stocks, Long-Term Treasuries, Cash, and a gold ETF.
But I do hold some physical gold. I think it is good insurance against "small probability high impact" events.
My long-term goal is to have my "wealth" stored in things like a super-insulated house, land with fruit trees and chickens, and good friendships. I worry that we're in for a bumpy ride, and I'd be happiest if I could secure at least some elements of a good life outside of the financial system.
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Gotcha. Makes sense.
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To original post,
IMHO
No, gold per se is not anti-mustashian. Is is a sort of 'super tulip', in that people have always digged gold, and been willing to exchange real stuff for it, for ever. Despite it just being super cool shiny metal. So, yes, it has been part of asset allocation strategies.
But, remember it's just super neat, shiny metal. It's really only worth something because other people want super shiny cool metal stuff. And so far it seems hard to replicate. Indians love the stuff, and basically drive the price along with gold nutcases and many nations reserve banks.
So I'd say be cautious and as long as the % allocation is 5% or less, go for it. Take physical possession if it floats your boat. I would.
Personally, I like having a little bit around. High carat necklaces in pre-measured links are great in a crisis. It is pretty. But I consider it fundamentally speculative. Because it doesn't generate intrinsic cash flow, the definition of a productive asset.
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Well, most of it is in 1s and 0s just like everybody else's. Stocks, Long-Term Treasuries, Cash, and a gold ETF.
Back in my day, we only had 0s... and we liked it!
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So, gold had it's biggest fall for 30 years today. -10% or so. And may now drop a further.... 50%? Who knows? As it has no yield, it depends on India and hedge funds.
Glad I don't hold gold, but also note the equity drop correlation. Albeit -2%. Gold is not a good hedge or store of short term value either.
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Yeah, gold down what an awesome event. Time to buy more.
As Baron Rothschild once said "The time to buy is when there's blood in the streets, even if the blood is your own."
http://www.investopedia.com/articles/financial-theory/08/contrarian-investing.asp (http://www.investopedia.com/articles/financial-theory/08/contrarian-investing.asp)
Mr Mark, would you be acting so smug if it was stocks taking the fall and not gold, or would you be following Rothchilds advice?
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Yeah, gold down what an awesome event. Time to buy more.
Buy more with what money!?! I was all in on gold!
Oh wait, I can sell some of my spare gold to buy more. Brilliant!
/ignore me. I have no gold, sold it years ago, I'm mostly all-in on Real Estate right now.
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Yeah, gold down what an awesome event. Time to buy more.
Buy more with what money!?! I was all in on gold!
Oh wait, I can sell some of my spare gold to buy more. Brilliant!
That's what I think when people invest 100% of their money in stocks.
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That's what I think when people invest 100% of their money in stocks.
Why? If you've invested in good stocks, they'll still be paying dividends.
Just for curiousity's sake, here's a list of the stocks that made up the Dow in 1929: http://en.wikipedia.org/wiki/Historical_components_of_the_Dow_Jones_Industrial_Average#September_14.2C_1929 A good many are still around (or their successors are), and still paying dividends.
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Well, it was a comment more about the 100% thing than the stock thing.
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Reinvesting dividends during market troughs to lower your average cost basis is amazing.
Can't do that so much with other investment vehicles (besides somehow taking rents and buying more real estate, if you have enough cash for it and/can get a loan.. stocks have a much lower entry point).
But yes, your point is well taken.
Rebalancing is difficult when you're 100% on asset. Only way to buy more is have some income elsewhere. Thus why it may be better to be 100% stocks while working (and can buy on dips with earned income) moreso than when FIRE'd.
Or you can give up the benefits of rebalancing for going long that asset.
Personally I think most early retirees should be 80-90% equities after FIRE, but that's a discussion for another topic..
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Well, it was a comment more about the 100% thing than the stock thing.
I'm not sure it's fair to compare "people with 100% in stocks" to "people with 100% in gold".
Maybe... maybe you can compare "people with 100% in a single stock" ... or "people with 100% in commodities". But you are comparing a portfolio that is (presumably) diversified across a single type of investment with a single entity of a single type.
I also wouldn't say gold has completely tanked. It was stupid high on fear. It could slide some more and still be an inflation hedge (depending on when you bought it, of course.)
That said: I don't own any gold. I'm not anti-gold, but even if I had owned some, I would have been selling little bits here and there for quite some time now as it went up.
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I thought it was quite interesting that the slide late last week happened in part because Cyprus was being pressured to sell some of its gold reserves to pay its debts. The increased supply of gold on the market would then lower the price. That was a correlation I wouldn't have expected.
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I thought it was quite interesting that the slide late last week happened in part because Cyprus was being pressured to sell some of its gold reserves to pay its debts. The increased supply of gold on the market would then lower the price. That was a correlation I wouldn't have expected.
It's more a fear response than a direct response to increased quantity. The amount of gold Cyprus could sell is fairly small relative to the total market.
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Well, it was a comment more about the 100% thing than the stock thing.
I'm not sure it's fair to compare "people with 100% in stocks" to "people with 100% in gold".
Maybe... maybe you can compare "people with 100% in a single stock" ... or "people with 100% in commodities". But you are comparing a portfolio that is (presumably) diversified across a single type of investment with a single entity of a single type.
I also wouldn't say gold has completely tanked. It was stupid high on fear. It could slide some more and still be an inflation hedge (depending on when you bought it, of course.)
That said: I don't own any gold. I'm not anti-gold, but even if I had owned some, I would have been selling little bits here and there for quite some time now as it went up.
If you have 100% of your money in stocks (VTSAX, say), plus a bit in your checking account for your monthly expenses, then you have nothing to re-balance into stocks when they go on sale. Just your monthly paycheck. So if some day, stocks drop 3%, 10%, or whatever, over night/over a week/over a month, you will still only be able to put in the money from your monthly paycheck.
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If you have 100% of your money in stocks (VTSAX, say), plus a bit in your checking account for your monthly expenses, then you have nothing to re-balance into stocks when they go on sale. Just your monthly paycheck. So if some day, stocks drop 3%, 10%, or whatever, over night/over a week/over a month, you will still only be able to put in the money from your monthly paycheck.
But if you don't have all your money in stocks, and they go up... what, 30% or so in the last year? you've lost out on that much gain.
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If you have 100% of your money in stocks (VTSAX, say), plus a bit in your checking account for your monthly expenses, then you have nothing to re-balance into stocks when they go on sale. Just your monthly paycheck. So if some day, stocks drop 3%, 10%, or whatever, over night/over a week/over a month, you will still only be able to put in the money from your monthly paycheck.
The latter is called dollar cost averaging.
The former is called market timing.
I favor the former much more.
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Neither of these seem very Mustachian to me. Your stash should be providing passive income, and in the first justification gold does not do this. You would be better off owning TIPS, which at least throw off a tiny amount of return.
Agreed.
Let's say the financial apocalypse happens. Gold becomes currency. You 'own' a lot of gold. Is that gold in your basement? No.. it's held by a big FI.. try trading someone some pieces of paper (or an e.bill) for food / water.. chances are it's not going to happen. Which means now you have a big cache of gold in your house.. if it's in your safety deposit box.. good luck getting it out.
Could this kind of collapse happen? Sure. If you want to prepare you should be buying stocks of food, hunting gear, and teaching yourself wildness skills and how to hunt and farm. Or maybe build a house / bunker in the hills somewhere. Owning gold is unlikely to do much.
I'm hedging that this won't happen.. it is does.. well yes, I might be ganked. Fortunately I can fire a gun, survive in the winter, build a fire, and hunt animals.
If it doesn't happen (which I think is more likely considering how the world is today and the rapid speed of our adaptability) then I'm covered with my current investments, which are always building on themselves.
If you think there's going to be a metal shortage, you'd be better off investing in mining companies or companies that control those resources.. a resource mutual fund or some such.
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The latter is called dollar cost averaging.
The former is called market timing.
I favor the former much more.
Wait, you favor market timing??? Or did you mean you favor the latter (dollar cost averaging)?
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The latter is called dollar cost averaging.
The former is called market timing.
I favor the former much more.
Wait, you favor market timing??? Or did you mean you favor the latter (dollar cost averaging)?
Dollar cost averaging is market all-the-timing. :P
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The latter is called dollar cost averaging.
The former is called market timing.
I favor the former much more.
Wait, you favor market timing??? Or did you mean you favor the latter (dollar cost averaging)?
*.
I meant the former for the order I listed them in. Wow was that confusing rereading it.
No, I favor dollar cost averaging.
Thanks for catching that.
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If you have 100% of your money in stocks (VTSAX, say), plus a bit in your checking account for your monthly expenses, then you have nothing to re-balance into stocks when they go on sale. Just your monthly paycheck. So if some day, stocks drop 3%, 10%, or whatever, over night/over a week/over a month, you will still only be able to put in the money from your monthly paycheck.
The latter is called dollar cost averaging.
The former is called market timing.
I favor the former much more.
Well, I guess you could call re-balancing your assets market timing, since it IS, at some level. I don't think this is what you mean, right? If you have a 60-40 stocks-bonds portfolio, and your positions become... I don't know, 70-30, or 50-50, you would re-balance when you hit your re-balancing bands, and I don't think many people would denigrate that practice.
If that IS what you meant, then I would consider myself a market timer. I always thought that the popular definition of a market timer was someone who said (for example) "ooooh, interest rates are super low, so I'm going to take my money out of bonds and put it into stocks," then after stocks went up for a while, 'calls the top' and sells their stocks, keeps everything in cash, then later buys something else.
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Having 100% in stocks and buying regularly (via monthly savings) is dollar cost averaging. Rebalancing is a form of market timing, yes, but a generally more accepted one, even for buy and holders (we could have a whole long discussion as to why, but it's a bit OT here.)
Holding a bunch of "dry powder" (aka cash) to buy when the market goes down, like you say, is absolutely market timing.
And best of luck to you if you subscribe to that theory of investing. Most investors do it (based on their emotions), and it doesn't end up going well. YMMV.
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Having 100% in stocks and buying regularly (via monthly savings) is dollar cost averaging. Rebalancing is a form of market timing, yes, but a generally more accepted one, even for buy and holders (we could have a whole long discussion as to why, but it's a bit OT here.)
Holding a bunch of "dry powder" (aka cash) to buy when the market goes down, like you say, is absolutely market timing.
And best of luck to you if you subscribe to that theory of investing. Most investors do it (based on their emotions), and it doesn't end up going well. YMMV.
Right on. I don't do it emotionally, just based on my asset allocation %s.
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Any thoughts on how the relatively new gold ETF's help or hurt the financial stability of gold? Seems like in the past, people bought physical gold. Now, the ETF are off the charts while consumption for commercial use is flat. The attributes that gold are touted to have seem to be weak. No correlation to inflation, not stable, etc. Have the ETF's magnified these swings? What caused the over buying and what caused the sell off?
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Any thoughts on how the relatively new gold ETF's help or hurt the financial stability of gold? Seems like in the past, people bought physical gold. Now, the ETF are off the charts while consumption for commercial use is flat. The attributes that gold are touted to have seem to be weak. No correlation to inflation, not stable, etc. Have the ETF's magnified these swings? What caused the over buying and what caused the sell off?
I'm going to take a wild guess with nothing to back me up.
There's a bit of a subculture that believes the whole world is going to crash down on them. It's the financial side of "the preppers" that have 2 years worth of food stored in their pantries. Tune in to Fox News and watch the commercials. You'll see an endless supply of "buy gold" that has undertones of fear pushed in. (I've said it before: I like gold. I think under normal circumstances it represents something that is rare and stable. We're just not in normal circumstances.)
Now... I probably share some of their fears (i.e. I do think the government on both left and right is a bit over reaching and the constitution has become a bit of a non-entity) ... but... I also pretty much think (1) we're not going to fall flat and become a Mad Max world and (2) even if we did, the amount of gold/food/bullets/fuel I'd have to have to survive it is so impractical that I'm going to assume it's impossible.
Why did it slide? Because it was priced too high, obviously. :) But seriously... you can only run things up based on fear for so long before a few people wake up and think "Hey, I could buy a shit ton of Vanguard Index funds for all this gold I bought at $400/oz."
If it slides some more... I might actually buy some.
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Any thoughts on how the relatively new gold ETF's help or hurt the financial stability of gold?
ETF are just another stock code and can be traded in the same way. As to hurt or help IMHO the jury is still out.
Seems like in the past, people bought physical gold.
Depends on what you are trying to achieve. If you want to speculate on its price movements then play in the paper market.
If you want to de-financialise your investments then buy physical.
People still do buy physical, I went to buy some from my local broker after the big fall and had to line up to get in, did a quick straw poll and everyone was there to buy.
Now, the ETF are off the charts while consumption for commercial use is flat.
Global commercial activity is currently low
The attributes that gold are touted to have seem to be weak. No correlation to inflation, not stable, etc.
You need to define your understanding of inflation to determine correlation. Money printing V Velocity of money
http://en.wikipedia.org/wiki/Velocity_of_money (http://en.wikipedia.org/wiki/Velocity_of_money)
Stable..... so an oz of gold changes into 2 oz and back again????
I think what you meant is that the purchasing power of a US dollar fluctuates, an oz of gold will always remain an oz of gold.
Have the ETF's magnified these swings?
No just the rapid fincialisation of our money system.
What caused the over buying and what caused the sell off?
Ask 10 talking heads and you will get 10 different answers.
My two Favorite personal reasons are
1. Forced selling due to Portfolio re-balancing caused by a spike in the 5 + 10 BOJ Bonds
http://finance.boston.com/boston/news/read/23961936/why_gold_really_crashed_and_what_you_can_do_about_it (http://finance.boston.com/boston/news/read/23961936/why_gold_really_crashed_and_what_you_can_do_about_it)
2. Cartel of key central bankers and favored financial institution led take down.
What you should be asking is, what am I going to do? When over buying or a sell off happens.
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No, I favor dollar cost averaging.
Okay all is well in the universe then ;-) Thanks for clarifying, and threadjack alert: Congratulations on your FI achievement at such a young age!
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I bought a token position in ABX today, as they are the largest gold producer. This is a speculation based on the view that the market has become excessively pessimistic on these names.
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Gold is a sort of insurance policy that you put [2%,5%,10%] of your savings in, and then hope and pray that it never pays off.
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Interesting video on Yahoo! It sounds like they are going to be digging into Gold and other financial news with CNBC. It will be interesting to see there take.
http://finance.yahoo.com/blogs/daily-ticker/gold-prices-still-very-inflated-cnbc-brian-sullivan-124729659.html?vp=1
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since this thread is about opinions, I'm not particularly sold on commodities nor am I on gold. However most would consider me a "gold bug" because I consider owning 'some' instead of 'none'. Fair enough
however [heh], I am sold on the blackswan/guns/ammo/water/food/ham radio/prepper value of a small allocation to gold/silver. Max of 2% of portfolio value is my personal theory.
Plus to be honest I'm a coin collector hoarder. And the only thing more awesome than collecting silver is gold. JMHO. Having a circulated $20 St. Gaudens in my pocket makes me very happy.
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I thought it was quite interesting that the slide late last week happened in part because Cyprus was being pressured to sell some of its gold reserves to pay its debts. The increased supply of gold on the market would then lower the price. That was a correlation I wouldn't have expected.
actually my understanding is the Cyprus effect was almost zero. They didn't sell unit 1. The price pressure came from JP Morgan/Goldman/etc building short positions in the metal recently and waiting for the perfect wind/conditions to announce "TIME TO GET OUT OF GOLD!!" articles/etc in the press, while they simultaneous slammed the market with approx 420 metric tons of sell orders, blowing through all buy orders in the market and slamming the price through a 2-sigma pricemove.
They then closed out their short positions at huge profit for their investors. Good show.
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Good article on gold and its place in your portfolio.
http://www.marketwatch.com/story/dont-fixate-on-gold-in-your-portfolio-2013-04-24?siteid=yhoof2
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Good article on gold and its place in your portfolio.
http://www.marketwatch.com/story/dont-fixate-on-gold-in-your-portfolio-2013-04-24?siteid=yhoof2
A 5th grader could write a better story than this.
He even ends it with a buck each way after confessing to be a Buffet acolyte
I think the most value in this entire article is when he talks about a IPS (Investment Policy Statement)
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I'm new here and am just starting to read about the mustachian ways but if gold is considered anti-mustachain then wouldn't almost every investment be anti-mustachian?
Apple products are another shiny product that people buy that hold no real value, are wasteful to create, and end up in landfills. What value does Facebook provide and how is its stock doing compared to gold? We can't really take the environmental high ground while communicating on devices that have been built and shipped from Asia using resources from other parts of the world.
Gold has value the same way that currencies have value. Many people have made a living off of Forex trading. It's just another investors tool to create more money. From an investment perspective, how is buying gold worse than buying real estate? Real estate requires maintenance to maintain value, is susceptible to market fluctuations, and you pay taxes to hold it. Some could say that is just as crazy.
As for the whole Mad Max theory. I'm not really buying that as we'll all be taken over by Cylons or part of the Matrix well before that :) but I can see some merit in the idea of holding physical precious materials. If the poop hits the fan then some form of currency (value for trade) will need to arise. If you have enough land, live in a good climate, and stocked enough weapons then you may be self sufficient. There will be some sort of economy that will develop as it has from the beginning of civilization. The farmer with all the apples can eat his share and let the others rot. He can give anything he doesn't need away. He can trade it for dried meats to help him get through the winter. Or he can trade them for some other item that other people value so that he can trade that item or other goods down the road. Some people think gold and silver is the item that everyone will hold common value in. Others think what good is a shiny piece of metal when I have all the Oreo cookies and more people like Oreos then useless metals.
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I'm new here and am just starting to read about the mustachian ways but if gold is considered anti-mustachain then wouldn't almost every investment be anti-mustachian?
Apple products are another shiny product that people buy that hold no real value, are wasteful to create, and end up in landfills.
And no one would argue that Apple products are an investment, but ownership in the company might be, if you expect their stock to go up based on it being worth more due to their ability to make money, or pay dividends, or whatever.
There is a difference in owning something you hope goes up for no particular reason versus reasons based on making money.
The rest of your post was related to ethically responsible investing, and we've talked about that here before - do a search of the forums for previous discussions and feel free to throw in your two cents there.
Welcome!
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Apple products are another shiny product that people buy that hold no real value, are wasteful to create, and end up in landfills. What value does Facebook provide and how is its stock doing compared to gold? We can't really take the environmental high ground while communicating on devices that have been built and shipped from Asia using resources from other parts of the world.
Unless you have something of a Luddite perspective, and believe we'd all be better off as technologically primitive hunter gatherers, it's hard to argue that Apple products and Facebook don't add value. Billions of people use these products on a daily basis to keep up with friends, check email on the go, navigate unfamiliar streets, and hundreds of other uses. The same can hardly be said of gold which generally sits in a safety deposit box.
From an investment perspective, how is buying gold worse than buying real estate? Real estate requires maintenance to maintain value, is susceptible to market fluctuations, and you pay taxes to hold it. Some could say that is just as crazy.
Gold is a nonproductive asset while real estate is a productive asset (people will pay to use your real estate, but not your gold; at least, not nearly as much). The notional value of each will track inflation over the long term, but unlike gold, real estate will generate additional returns in excess of maintenance and taxes. This makes a diversified real estate portfolio a much more attractive long term investment than gold.
If the poop hits the fan then some form of currency (value for trade) will need to arise. If you have enough land, live in a good climate, and stocked enough weapons then you may be self sufficient. There will be some sort of economy that will develop as it has from the beginning of civilization.
I guess I can't begrudge anyone hedging themselves for a return to a lawless barter society, but I'd suggest that the cost of acquiring such a hedge is very high relative to the probability of it paying off. You'd almost certainly be better off expending time and resources on a personal trainer and being extra careful when you cross the street.
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And no one would argue that Apple products are an investment, but ownership in the company might be, if you expect their stock to go up based on it being worth more due to their ability to make money, or pay dividends, or whatever.
There is a difference in owning something you hope goes up for no particular reason versus reasons based on making money.
Maybe I'm misunderstanding why people buy gold. I don't think they buy it to go down and imagine its as an investment. Some investments just have better returns than others. The 52-week High/Low of Apple doesn't look any better than gold and dividends are only good if the stock doesn't drop in value. As with most investments, timing is everything. I don't own gold and would never buy large amounts but what is the difference between owning a stock or ETF expecting 5% return or owning gold and expecting the same? Gold has value, that is why it's traded. Apple as a company/brand/product has value as well. So why is one worse than the other?
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Maybe I'm misunderstanding why people buy gold. I don't think they buy it to go down and imagine its as an investment. Some investments just have better returns than others. The 52-week High/Low of Apple doesn't look any better than gold and dividends are only good if the stock doesn't drop in value. As with most investments, timing is everything. I don't own gold and would never buy large amounts but what is the difference between owning a stock or ETF expecting 5% return or owning gold and expecting the same? Gold has value, that is why it's traded. Apple as a company/brand/product has value as well. So why is one worse than the other?
I can't speak for others, but the reason I like gold is not I would expect a return from it* but that it represents an expected stable value over time. That said: it would represent part of an emergency fund and I don't think I'd ever really want to own more than say 1% of my total portfolio.
*I am disregarding the current fear-based gold value spike. It's possible that one could have made (and maybe still can) a ton of money off the current spike, but that requires market timing. That's not my strategy at all. At some point I expect a correction.
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Unless you have something of a Luddite perspective, and believe we'd all be better off as technologically primitive hunter gatherers, it's hard to argue that Apple products and Facebook don't add value. Billions of people use these products on a daily basis to keep up with friends, check email on the go, navigate unfamiliar streets, and hundreds of other uses. The same can hardly be said of gold which generally sits in a safety deposit box.
I love technology and all the comforts it brings. As an investor I'm ideally looking for the best returns for the least amount of risk (very rare I know). If that investment happens to be gold then why should it be overlooked just because it will sit there in a box.
Gold is a nonproductive asset while real estate is a productive asset (people will pay to use your real estate, but not your gold; at least, not nearly as much). The notional value of each will track inflation over the long term, but unlike gold, real estate will generate additional returns in excess of maintenance and taxes. This makes a diversified real estate portfolio a much more attractive long term investment than gold.
Ask those that had to sell off their homes in the states like Florida, Nevada, and Arizona how they did with their productive assets. Those properties have value, that is why everyone is into clamouring to purchase there, but it isn't without risk.
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But you can price a house on 2 real basis measures:
Compared to the net present value of future rents
Compared to income and mortgage interest rates and tax
There is a reasonable estimate of future cashflow. this is worth something. Gold does not have cashflow. It's a lump of metal. All you can do is stroke it.
Similar metrics for gold would be
Price vs average and marginal costs of production
Gold vs a core commodity that is useful, and highly traded and consumed, like oil or pork bellies
Similarly, stocks represent a share of businesses. They grow and pay dividends. Again, in many cases this can be reliably estimated. These are often blue chip stocks. Coke, or GE or Johnson and Johnson are not about to go broke.
Even better, you can just buy the whole market (U.S. or World) and take a share of owning a piece of the capital. I guarantee the world economy will grow over the next 50 years. A diversified low fee portfolio will win in the end, and it should include real estate (especially land) and perhaps loans to reliable people ( like the US government).
personally I think gold ( or tulips) have no role to play in my investment portfolio. It's pure speculation, in a game dominated by JP Morgan, Goldman Sachs, and the world's central banks. it demonstrably loses money long term. It does not protect against inflation. It is not as liquid as you think. And it provides no yield.
So, Good luck with that.
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Ask those that had to sell off their homes in the states like Florida, Nevada, and Arizona how they did with their productive assets. Those properties have value, that is why everyone is into clamouring to purchase there, but it isn't without risk.
You'll notice that I argued for the superiority of productive assets over non-productive assets over "the long term", not any given 2 year period. Based on short term price performance, you could similarly make the case that Beanie Babies are an essential part of everyone's investment portfolio.
The best argument for gold is that it's a diversifying asset that will reduce risk in a periodically rebalanced portfolio, despite having no real return itself. You can study the literature and decide for yourself.
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As with most arguments on this forum they are based on US centric views of the world.
When you live outside of Planet America you gain insights to how 6.5 billion other people live and think.
Personally I am with Asia on what will be the winner at the end of this grand experiment in fiat currency.
(http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2013/05/China%20vs%20US%20currency%20war.jpg)
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Adrian. I think you hit it on the head, both gold and dollars have no intinsic value. Buying stocks, houses and other assets that will float with the economic environment gives you a fighting chance. Holding cash or gold is less certain.
As with most arguments on this forum they are based on US centric views of the world.
When you live outside of Planet America you gain insights to how 6.5 billion other people live and think.
Personally I am with Asia on what will be the winner at the end of this grand experiment in fiat currency.
(http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2013/05/China%20vs%20US%20currency%20war.jpg)
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As with most arguments on this forum they are based on US centric views of the world.
When you live outside of Planet America you gain insights to how 6.5 billion other people live and think.
Personally I am with Asia on what will be the winner at the end of this grand experiment in fiat currency.
I don't think anyone is arguing that cash is superior to gold over the long haul. But even Asia recognizes the need for real returns:
http://www.bloomberg.com/news/2013-05-27/china-said-to-study-investing-reserves-in-u-s-property-market.html
Also, I'd read zerohedge with extreme skepticism.
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I don't think most people realize that a completely unbacked fiat currency in the U.S. is a very new (40 year) experiment. Historically, AFAIK all successful currencies, including the USD, were backed by precious metals. Again, historically, all unbacked currencies have eventually ended in failure, hyperinflation being quite common once the government tries to simply print their way out of difficulties (e.g. the U.S. Continental and Confederate Dollar).
Because of human nature and historical precedent, it would be wise to hold other forms of money (e.g. Gold) and invest in profitable companies versus holding onto a paper currency that is being actively printed at $45 billion per month and floats independent of any real-world value or commodity. Sure, you might get rich gambling, but I'm more risk-adverse than that. I'd also stay far, far away from Japanese Yen.
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I'm also not particularly sure that historical references to failed currencies [in truth, all currencies/regimes eventually fail, whether backed by a commodity or not] has merit.
Not trolling, being honest. When/where/(if?) the USD fails investors will have a host of other problems as well. Was there a revolution? Did we get invaded? Did Mars attack? Was there a black swan of some sort? If no black swan, was it simple macro effects of failing to pay our bills in the long run and eventually running afoul of the credit markets.
In any of these scenarios holding gold doesnt really save you or matter a darn, IMO. Gold offers a nice little shiny substance that seems to have *some inflation protection (in the long run) and *may diversify your holdings somewhat.
But when/if the USD fails, holding/hoarding gold doesn't really solve the primary problem. In this scenario what happened to equities/bonds? I assume that there are ginormous defaults/and/or privitization going on as well. In a Hugo Chavez/Argentina/Eastern Bloc failtopia what did holding gold do?
I'd argue not much. More than nothing, perhaps. But you can make similar arguments for holding arable land, fishing supplies, guns/ammo, and peanut butter/lentils/canned food.
I'm not sure what investors/workers 'got' in those scenarios, but basically it's some version of "the shaft".
No? To re-phrase: Sure, the USD will eventually 'fail' in some degree or other---eventually. [in the long run we're all dead, the chance of another recession is always 100%, etc etc], and that's fine. But what practical benefit does holding gold do in that scenario?
And I've already admitted I'm a gold-fan, I think it's prudent to hold 1-5% of one's networth in gold! that's a lot for a non-productive asset.
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I'm not saying the USD will fail completely, but investors should do their own research on Quantitative Easing. Currently it is not a fixed program, but an endless printing of $85 billion/month. Because this money has not yet entered wide circulation (velocity is low), it has not yet had major inflationary ramifications. I don't know how it will play out, but it does create a unique and new scenario.
If you consider Gold as an alternative currency investment, it would save you by always retaining its purchasing power. It shouldn't make your rich (or it would be in a bubble), but simply protect your stored wealth against inflationary scenarios. Similar to commodities like oil, it can always be exchanged for other currencies. Unlike commodities (oil, lumber), it has no expiration date. Traditionally it has been exchanged directly for services/goods instead of paper currency.
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In the event of a complete collapse of the US economic structure gold may very well be about as useful as the US dollar. Where will you be storing your gold? Will you be wheeling it around to the grocery store? If you're that concerned about the near future health of the US dollar and expect an inevitable catastrophic collapse buy survival/farming materials. They'll be more practical in a situation where you can't buy anything. Because if you can't buy anything there is no reason for anyone to think the chunk of metal you're carrying around has any value.
If we're talking more about a small scale event, perhaps a hiccup in the economic timescale, then sure I guess gold can be reasonable. But just as reasonable as any other investment IMO.
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For someone where wheelbarrows are a concern, they could likely afford an armed security entourage or form their own bank.
$100,000 in Gold could be transported in a coffee mug if desired. Most likely you would trade it directly for a desired good or take it to a local dealer (jewelry, pawn, coin shop) and exchange it for X amount of local or foreign currency. Silver would be far more useful for small exchanges and has traditionally been used in that role.
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Will 72-and-change troy Oz (~5 lbs) really fit in a coffee mug?
Lets say they are ~$5 quarter eagle sized (~nickel). Can you really fit seven-and-a-half rolls of nickels in a coffee cup? Maybe a 64 oz coffee cup I guess?
It would be fun to try, heh.
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My point wasn't about the method of transporting the gold. Just that when we discuss a collapse big enough to make people have to barter with gold how are we going to evaluate that value? Do you really foresee someone with a scale measuring out your gold and double checking the commodity price for the day? If you choose to invest in gold as an investment much like any commodity that is okay. When we run to gold as the savior of our economy because of some concern of the collapse of the dollar we miss the fact that they both share the same flaw which can cause a collapse; we all assume they have value therefore they have value. Unless you are selling it as crafted jewelery or to an electronics manufacturer gold has no intrinsic value and is quite useless to your local grocer.
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therein lies the dividing line(s) of the gold-bugs, imo.
Is it 'bad enough' that society has collapsed, central govt chaos, and anarchy reins.... for decades?
Are we talking preppers with small arms, compounds, self-sustaining farms w/posse/gang security teams?
Or are we simply talking about worrying over a huge burp/reset of the USD after some kind of debt calamity, and say a 'new USD' gets offered with several Zeros removed at some point. At that point it is presumed the gold holder did pretty well.
So it's probably more about the latter than the former. Argentina is a good recent example of the latter. It is believed gold holders there did just fine. Some people werent paid for quite a while and all that. Basically gold-hoarding scenarios are all over the place if you care to look. Makes for good bedtime stories but I'm not sure how applicable they are towards the United States anytime soon. Of course Ron Paul has been preaching about the coming catastrophe in the federal reserve for a few decades now. Any minute now... I guess.
http://en.wikipedia.org/wiki/Argentine_economic_crisis_(1999-2002)
Inflation and unemployment worsened during 2002. By that time the exchange rate had reached nearly 4 pesos per dollar, while the accumulated inflation since the devaluation was about 80%; considerably less than predicted by most orthodox economists. The quality of life of the average Argentine was lowered proportionally; many businesses closed or went bankrupt, many imported products became virtually inaccessible, and salaries were left as they were before the crisis.
This is basically the holy-grail /honey pot/strike zone/ Hail Mary/ success case gold-bugs keep under their collective pillow(s) at night. It is tough to argue with. It is also tough to see how those specific macro causal factors apply to the US.
Equities and Bonds both got completely crushed also. I'm sure someone can research this factoid but it more or less mirrored the currencies malaise. A diversified/bogleish world indexer in Argentina might have done slightly better. Perhaps they had ~25-40% in "foreign" equities... and other than the .bomb collapse everywhere that also occured at this time... at least didn't take an ~80% haircut. Well they did if they were invested in Nasdaq-100 or similar heh.
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Regarding evaluating value of Gold, a currency backed by it should be relatively stable with a tendency towards price deflation (as processes become more efficient).
For example, in 1964 the price of a gallon of gas was $0.30. At that time, US quarters were compromised of 90% silver. What is the melt (silver) value of that Quarter today? Well we have $4.14.
What is the gas price today? In my area, it is $3.68. So if you had kept your silver quarters from 1964 until today, you would be paying less for a gallon of gas today than you would have in 1964. (Of course, this is subject to fluctuations, Hunt brothers price manipulations, variations in the value of oil, etc. but we should have price stability in the long-run). So anyway, I would happy to trade you a gallon of gas for a 1964 quarter. And if you take that quarter to Canada or a coin dealer, you could exchange it for paper currency.
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It's probably more cogent to compare it to a unit of labor, or just look at the CPI
In those terms, not much has changed. We don't need to eat silver (or gold)
The Nixon-removal-of-the-gold-standard and the Bretton Woods system were both singular events in history. Most of these extrapolations are based on assuming these type(s) of events can somehow occur into the future and magically gold becomes "worth" some fixed portion of the worlds total resources/output/companies.
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I'm sorry, but that argument seems to contain a fallacy. Nobody needs to eat dollars or yen either. Both are different ways of storing productive capacity. Gold is an ideal form of money because it has scarcity, is infinitely divisible, has no counter-party risk (e.g. can't be printed), and does not degrade or tarnish with time. None of the above attributes apply to paper currency, which over the long-haul has a lot more risk and is enforced by government decree. For example, according to the BLS Consumer Price Index, the dollar has lost 95% of its value since inception in 1913.
The best way to protect against that 95% loss would be to have wisely invested the money. Alternatively, if you bought an ounce of Gold in 1913 for $20.64 it would be worth $1,416.00 today, meaning your purchasing power would have been protected. I'm not sure why you are trying to avoid that realization?
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The best way to protect against that 95% loss would be to have wisely invested the money. Alternatively, if you bought an ounce of Gold in 1913 for $20.64 it would be worth $1,416.00 today, meaning your purchasing power would have been protected. I'm not sure why you are trying to avoid that realization?
I think the point is that sitting on money or gold is not a smart move over long periods of time. Gold is not an investment. It is a fiat currency in its own manner. In your example the $20.64 of gold from 1913 would have been worth $226,000 if it was invested in the S&P500. I don't think it is mustachian to hold onto large amounts of cash or gold. Unless the world comes to the brink of extinction, then cash is a more useful currency. If the world does come to the brink then I think guns, food and survival skills and materials will be way more valuable.
http://www.moneychimp.com/features/market_cagr.htm
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I'm sorry, but that argument seems to contain a fallacy. Nobody needs to eat dollars or yen either. Both are different ways of storing productive capacity. Gold is an ideal form of money because it has scarcity, is infinitely divisible, has no counter-party risk (e.g. can't be printed), and does not degrade or tarnish with time. None of the above attributes apply to paper currency, which over the long-haul has a lot more risk and is enforced by government decree. For example, according to the BLS Consumer Price Index, the dollar has lost 95% of its value since inception in 1913.
The best way to protect against that 95% loss would be to have wisely invested the money. Alternatively, if you bought an ounce of Gold in 1913 for $20.64 it would be worth $1,416.00 today, meaning your purchasing power would have been protected. I'm not sure why you are trying to avoid that realization?
It still seems like you're returning to the well of the once-in-a-lifetime Nixon removal of the gold standard event? Still my inflation/CPI calculator doesn't go back to 1913. But if it did, I imagine $20.64 in 1913 would be in the ballpark of $1416 today. Of course if that were invested in the stock market there are only a handful of companies that are still around from then. Perhaps that's your point. Still all I was trying to say was that a unit of labor in 1913 still buys not just the same goods it could in 1913---it can buy even more. The consumer has had a huge surplus in purchasing power.
Worrying about nominal inflation misses the forest for the trees, imo. I believe a dollar was a days wages more or less back in 1913 for a professional. Today that's probably $200 or so. Something like that. Point is that Gold has managed to hold on to some purchasing power. Sure, I get that.
But so too would have productive inputs such as factories, timberland, mines, real estate, or other such assets. Gold is element #79, and basically all the gold ever mined is currently above ground and available for sale (potentially). It doesnt really degrade or anything like that. It's only value is that which we attribute to it. And it seems like we like it, a lot. I do too. But lets not get carried away.
Anecdotes that all begin/end before/after the removal of the Gold standard in the US all try to paint the same picture. It doesnt really mean anything moving forward is the problem. And I truly believe the Argentina scenario is the key example for 'success' for holding some gold to preserve purchasing power. It's clearly no panacea.
More likely Gold falls some and approaches it's more long-term marginal production cost (adjusted for inflation) which is in the $750-850 range.
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It still seems like you're returning to the well of the once-in-a-lifetime Nixon removal of the gold standard event? Still my inflation/CPI calculator doesn't go back to 1913.
off topic, but CPI is far from perfect, too. They change the formula over time, making year-to-year comparisons difficult. It's computed by the government, too... Call me a conspiracy theorist, but I am pretty sure politics and creative accounting comes into play here.
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It still seems like you're returning to the well of the once-in-a-lifetime Nixon removal of the gold standard event? Still my inflation/CPI calculator doesn't go back to 1913.
off topic, but CPI is far from perfect, too. They change the formula over time, making year-to-year comparisons difficult. It's computed by the government, too... Call me a conspiracy theorist, but I am pretty sure politics and creative accounting comes into play here.
OK, you are a conspiracy theorist. Nice tinfoil hat!
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It still seems like you're returning to the well of the once-in-a-lifetime Nixon removal of the gold standard event? Still my inflation/CPI calculator doesn't go back to 1913.
off topic, but CPI is far from perfect, too. They change the formula over time, making year-to-year comparisons difficult. It's computed by the government, too... Call me a conspiracy theorist, but I am pretty sure politics and creative accounting comes into play here.
OK, you are a conspiracy theorist. Nice tinfoil hat!
Like it? I made it myself!
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My biggest problem with the CPI conspiracy stuff is that it simply isn't sustainable.
If they monkey'd with it once or twice (ever), fine. If it was a continual thing, the way compounding works, prices would just be so out of line.
Go graph 3% exponential growth versus 5%, 10%, whatever. The graphs diverge so quickly, it'd just be blatantly obvious after a short period that reality doesn't match the numbers, and I just don't see that as the case.
If they had been monkeying with CPI for the last decade or two, as some claim, prices would be so much higher than they are. Instead they (gasp) seem to match reported inflation rates, or pretty close.
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My biggest problem with the CPI conspiracy stuff is that it simply isn't sustainable.
If they monkey'd with it once or twice (ever), fine. If it was a continual thing, the way compounding works, prices would just be so out of line.
Go graph 3% exponential growth versus 5%, 10%, whatever. The graphs diverge so quickly, it'd just be blatantly obvious after a short period that reality doesn't match the numbers, and I just don't see that as the case.
If they had been monkeying with CPI for the last decade or two, as some claim, prices would be so much higher than they are. Instead they (gasp) seem to match reported inflation rates, or pretty close.
I'm exaggerating a bit... I'm not nearly the conspiracy theorist that some are.
They have tweaked the formula over time to (presumably) make it better. And that does make it hard to accurately compare things. I do, however, think it's a pretty fuzzy number. It is one of those "it's the best we got" things.
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I also think it under-represents things that really nail consumer budgets (food, energy), and under-represent the true impact of housing expense
also the new chained-CPI seems like a cleverly designed ruse to reduce SS payouts. #dons_tinfoil_hat
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My biggest problem with the CPI conspiracy stuff is that it simply isn't sustainable.
If they monkey'd with it once or twice (ever), fine. If it was a continual thing, the way compounding works, prices would just be so out of line.
Go graph 3% exponential growth versus 5%, 10%, whatever. The graphs diverge so quickly, it'd just be blatantly obvious after a short period that reality doesn't match the numbers, and I just don't see that as the case.
If they had been monkeying with CPI for the last decade or two, as some claim, prices would be so much higher than they are. Instead they (gasp) seem to match reported inflation rates, or pretty close.
You should check out the work done by shadowstats http://www.shadowstats.com/alternate_data/inflation-charts (http://www.shadowstats.com/alternate_data/inflation-charts)
(http://www.shadowstats.com/imgs/sgs-cpi.gif?hl=ad&t=)
You can see the divergence pretty clearly.
Also inflation can appear in many ways not just a price increase.
How about the price staying the same and the product shrinking?
http://www.dailymail.co.uk/news/article-1190395/Shrinking-Mars-bar-Size-cut-7-2-price-stays-same.html (http://www.dailymail.co.uk/news/article-1190395/Shrinking-Mars-bar-Size-cut-7-2-price-stays-same.html)
I am sure we all know of similar occurrences.
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Apparently the argument seems to be its hyperinflation or TEOTWAWKI are the only reason to hold gold.
I won't get into TEOTWAWKI, because you can go watch dooms day prepers for that.
Do you even know what hyperinflation is? go on define if.
Could you tell me the difference between low inflation, moderate inflation, high inflation and hyperinflation.
Each scenario has its winners and losers. But by only talking about gold and hyperinflation scenario you miss out on a lot of times when gold will do its job.
If for example we where to experience inflation rates of the 70's again how would your portfolio perform?
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My biggest problem with the CPI conspiracy stuff is that it simply isn't sustainable.
If they monkey'd with it once or twice (ever), fine. If it was a continual thing, the way compounding works, prices would just be so out of line.
Go graph 3% exponential growth versus 5%, 10%, whatever. The graphs diverge so quickly, it'd just be blatantly obvious after a short period that reality doesn't match the numbers, and I just don't see that as the case.
If they had been monkeying with CPI for the last decade or two, as some claim, prices would be so much higher than they are. Instead they (gasp) seem to match reported inflation rates, or pretty close.
You should check out the work done by shadowstats http://www.shadowstats.com/alternate_data/inflation-charts (http://www.shadowstats.com/alternate_data/inflation-charts)
(http://www.shadowstats.com/imgs/sgs-cpi.gif?hl=ad&t=)
You can see the divergence pretty clearly.
Also inflation can appear in many ways not just a price increase.
How about the price staying the same and the product shrinking?
http://www.dailymail.co.uk/news/article-1190395/Shrinking-Mars-bar-Size-cut-7-2-price-stays-same.html (http://www.dailymail.co.uk/news/article-1190395/Shrinking-Mars-bar-Size-cut-7-2-price-stays-same.html)
I am sure we all know of similar occurrences.
That exactly proves my point.
That's what I meant when I said if CPI was as different as they said, prices would diverge so quickly.
That chart purports to show inflation rates - reported at around 3.5% average? and what they claim as real as around 9% average? (I'm just eyeballing here).
Take the price of something, and graph it on 3% growth for 20 years and 9% growth.
The prices of stuff would shoot up so high at 9%, and it just hasn't happened in the real world.
That graph diverges because it is what they claim is real versus fact, and the divergence stays flat because there's no year over year compound growth, it's a linear chart.
What I'm saying, and why I have trouble believing that graph is accurate, is because if we actually had continual inflation of 10% or so for the last decade, everything would be priced so much higher (it would have diverged exponentially due to compound growth). That just hasn't happened.
That chart is the basic proof of why it (the chart) is wrong. Go graph $1 in 1988 based on both those growth levels and look at the difference between them (and it's not the difference between the ending red and blue line in that chart, if you understand compound growth).
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That chart is the basic proof of why it (the chart) is wrong. Go graph $1 in 1988 based on both those growth levels and look at the difference between them (and it's not the difference between the ending red and blue line in that chart, if you understand compound growth).
The chart actually shows why CPI is sort of a BS thing. They (shadowstats) basically are calculating CPI using the actual real formula for CPI that was used in 1980.
The problem is that the formula keeps changing.
I'm not economically equipped here to say which formula (if any) is correct. But I know if you graph something and change the formula mid stream, you just don't have any means to compare the old data to the new data. You either have to backport the old data to the new formula or stop changing formulas.
edit: I don't really think there is a mass conspiracy here. (I just think it's funny to pretend there is.) I just think people are trying (right or wrong) to refine a formula that is "mostly working". But if you don't backport the data: you're doing it wrong.
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Warren Buffett on gold:
The second major category of investments involves assets that will never produce anything, but that are purchased in the buyer’s hope that someone else – who also knows that the assets will be forever unproductive – will pay more for them in the future. Tulips, of all things, briefly became a favorite of such buyers in the 17th century.
This type of investment requires an expanding pool of buyers, who, in turn, are enticed because they believe the buying pool will expand still further. Owners are not inspired by what the asset itself can produce – it will remain lifeless forever – but rather by the belief that others will desire it even more avidly in the future.
The major asset in this category is gold, currently a huge favorite of investors who fear almost all other assets, especially paper money (of whose value, as noted, they are right to be fearful). Gold, however, has two significant shortcomings, being neither of much use nor procreative. True, gold has some industrial and decorative utility, but the demand for these purposes is both limited and incapable of soaking up new production. Meanwhile, if you own one ounce of gold for an eternity, you will still own one ounce at its end.
What motivates most gold purchasers is their belief that the ranks of the fearful will grow. During the past decade that belief has proved correct. Beyond that, the rising price has on its own generated additional buying enthusiasm, attracting purchasers who see the rise as validating an investment thesis.
As “bandwagon” investors join any party, they create their own truth – for a while.
Over the past 15 years, both Internet stocks and houses have demonstrated the extraordinary excesses that can be created by combining an initially sensible thesis with well-publicized rising prices. In these bubbles, an army of originally skeptical investors succumbed to the “proof” delivered by the market, and the pool of buyers – for a time – expanded sufficiently to keep the bandwagon rolling. But bubbles blown large enough inevitably pop. And then the old proverb is confirmed once again: “What the wise man does in the beginning, the fool does in the end.”
Today the world’s gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce – gold’s price as I write this – its value would be $9.6 trillion. Call this cube pile A.
Let’s now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world’s most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B?
Beyond the staggering valuation given the existing stock of gold, current prices make today’s annual production of gold command about $160 billion. Buyers – whether jewelry and industrial users, frightened individuals, or speculators – must continually absorb this additional supply to merely maintain an equilibrium at present prices.
A century from now the 400 million acres of farmland will have produced staggering amounts of corn, wheat, cotton, and other crops – and will continue to produce that valuable bounty, whatever the currency may be. Exxon Mobil will probably have delivered trillions of dollars in dividends to its owners and will also hold assets worth many more trillions (and, remember, you get 16 Exxons). The 170,000 tons of gold will be unchanged in size and still incapable of producing anything. You can fondle the cube, but it will not respond.
Admittedly, when people a century from now are fearful, it’s likely many will still rush to gold. I’m confident, however, that the $9.6 trillion current valuation of pile A will compound over the century at a rate far inferior to that achieved by pile B.
From the Berkshire Hathaway 2011 annual report (http://www.berkshirehathaway.com/2011ar/2011ar.pdf)
[/end thread] ;)
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it seems to me, backtested for the 20th century: gold has almost nothing to do with inflation
However, it does seem to respond to other stimuli, such as whether or not it is tied to a given currency. Now that that is forever gone, it has floated up a bit. Then back down. Then it had a huge speculative bubble in ~80 or so, perhaps as a result (partially) due to the 70s stagflation. Now we've had another run-up, due in part perhaps because of central bank activity or investor sentiment or who knows. It definitely looks like some downside potential here though. I suppose if gold were an actual asset class (eg commodities) we'd call that market timing. Or at least value-surmizing.
anyways heres a chart
(http://cornicecapital.com/AlpineAdvisor/wp-content/uploads/2013/04/Inflation-Adjusted-Gold.png)
I guess it somewhat mirrors inflation
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(http://thechive.files.wordpress.com/2013/05/argument-is-invalid-meme-44.jpg?w=500&h=485)
I didn't really read much of the thread, but this probably fits somewhere.
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http://www.project-syndicate.org/commentary/the-end-of-the-gold-bubble-by-nouriel-roubini
For those who'd like to hear from a respected economist on gold, there's a nice article from Nouriel Roubini.
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Warren Buffett on gold:
Blah Blah Blah
Has already been covered.
But here we go again.
I wrote this a year ago.
https://forum.mrmoneymustache.com/investor-alley/gold-i-we-still-cavemen/msg10790/#msg10790 (https://forum.mrmoneymustache.com/investor-alley/gold-i-we-still-cavemen/msg10790/#msg10790)
Over the last 10 years
Gold up 200%
BRK.A up 100%
This is am improvement from 1 year ago So buffet wins on a 1 year time frame
But still has a long way to go.
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it seems to me, backtested for the 20th century: gold has almost nothing to do with inflation
Don't forget that prior to 1971 the dollar was pegged to gold. That's why your chart really picks up from the 70's to the present.
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Over the last 10 years
Gold up 200%
BRK.A up 100%
This is am improvement from 1 year ago So buffet wins on a 1 year time frame
But still has a long way to go.
Real results during a cherry-picked time frame have very little to do with whether or not something is actually correct. One could pick stocks with a dart and make 400% and beat both those, that doesn't make the investment strategy correct.
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Over the last 10 years
Gold up 200%
BRK.A up 100%
This is am improvement from 1 year ago So buffet wins on a 1 year time frame
But still has a long way to go.
Real results during a cherry-picked time frame have very little to do with whether or not something is actually correct. One could pick stocks with a dart and make 400% and beat both those, that doesn't make the investment strategy correct.
Not cherry picked just used the last decade, as of 03/06/2013
But feel free to show me a chart of the last decade where buffet out performed gold.
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well he out-performed the S&P for like 40 years, and lately has been regressing to the mean a bit. Not a big surprise. Buffet's performance is nothing short of magical, imo. The only other contemporary example we have for a fund manager is Peter Lynch [Fidelity Magellan fund].
Is your point Gold has done well post-exit of the Gold Standard in the Nixon administration? Indeed it has. So lets look at that period then! Best case for gold you can find anywhere!
(http://blogs-images.forbes.com/greatspeculations/files/2013/03/Gold-SP500-20131.png)
So with this once-in-a-lifetime event, it looks kinda like a push to me? Perhaps I dont see the initial conditions well enough. The more important question becomes: Is gold expected to perform as well as the S&P 500 moving forward? One of the reasons I dont like this chart is it ignores the S&P 500 dividends [currently 2%, historically 4-5%]
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Over the last 10 years
Gold up 200%
BRK.A up 100%
This is am improvement from 1 year ago So buffet wins on a 1 year time frame
But still has a long way to go.
Real results during a cherry-picked time frame have very little to do with whether or not something is actually correct. One could pick stocks with a dart and make 400% and beat both those, that doesn't make the investment strategy correct.
Not cherry picked just used the last decade, as of 03/06/2013
But feel free to show me a chart of the last decade where buffet out performed gold.
More to the point is that the performance of Berkshire Hathaway vs. Gold over the last decade is not an argument stating whether what Buffet is saying is wrong or right. You're trying to discredit his argument by pulling a red herring. I'd be more interested in your actual points instead of your non-points.
Buffet's points -
Gold has no real utility outside of some electronics and jewelery it is just like any other commodity.
It is more of a bandwagonning or herd mentality affect rather than its actual usefulness which dictate it as an investment people flock to for "security".
Investing in businesses will make them grow and the investor rides that growth. Investing in gold gets you a certain quantity of gold... that quantity doesn't magically get bigger.
Try discussing points like that instead of the price of a single company vs the price of gold as that's a pretty useless point imo. Feel free to correct me and tell me how it even matters though.
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Not cherry picked just used the last decade, as of 03/06/2013
But feel free to show me a chart of the last decade where buffet out performed gold.
And I used the last year, but feel free to show me a chart of the last year where Gold outperformed Buffet.
/eye roll
Even if it did, that doesn't prove anything. A monkey with a dart could potentially outperform both the next year going forward and that doesn't mean I'd declare it a better investing strategy. What it happened to do on some time period doesn't do anything but show us what performed best during that particular time period. Aka tells us basically nothing at all.
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The more important question becomes: Is gold expected to perform as well as the S&P 500 moving forward?
Since I can't see the future I prefer to ask:
In what economic conditions does gold perform well, and does it make sense for me as part of a balanced (and eventually rebalanced) asset allocation?
I personally own some gold and find it a useful portion of my portfolio. To each his own. But IMHO comparing 100% gold to 100% stocks (or 100% bonds, REITs, whatever) is a false choice. Diversification (however you choose to do it with your own money) is healthy.
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Using your hard earned and saved employees to buy a lump of shiny metal is what's unhealthy for your stash, that's for real.
But a good tinfoil hat always comes in handy. That way George Soros and his hyperinflation plan can't infect your brain, leaving your vital essances clear to buy gold, lots of gold, shiny shiny gold! Could Glenn Beck be wrong? /sarcastic
If you've got a mortgage or any debt, it means you're borrowing to invest in gold. An investment with zero yield.
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Wow that 1980 peak sure was high! According to official CPI we'd have to hit $2,440.14 in today's dollars to match that again. That might be over priced, but we're only at $1,400 right now.
I wouldn't buy Gold hoping for outperformance, unless after careful analysis you really believe it is dramatically undervalued. It's just highly recommended to hold some if you expect high inflation, which seems likely from the Fed's ongoing QE. Did you see their recent minutes? Even the Fed-heads appear concerned.
Members of the Federal Reserve’s advisory council, which includes the Board of Governors, have expressed strong concerns over the Fed’s low-interest rate policies and its bond-purchase program, which they say could trigger unmanageable inflation and an "unsustainable bubble" in the stock and bond markets.
http://www.ibtimes.com/federal-reserve-advisory-committee-worries-about-inflation-unsustainable-bubble-stocks-bonds-1287261
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Or you could alternatively read the actual minutes and find out that no one says anything about unmanageable inflation - http://federalreserve.gov/aboutthefed/fac-20130517.pdf
There are potential risks associated with current policy. The Fed’s securities purchases have reduced mortgage yields and, to a lesser extent, Treasury yields. Current low bond yields are disruptive to management of fixed-income portfolios, retirement funds, consumer savings, and retirement planning. They may encourage unsophisticated investors to take on undue risk to achieve better returns. MBS purchases account for over 70% of gross issuance, causing price distortion and volatility in the MBS market. Fixed-income investors worry that attractive mortgage-backed securities are in very tight supply. Higher premium coupons carry too much exposure to prepayments, potentially led by new government support programs for housing. Many are concerned about the Fed’s significant presence in the market. They have underweighted MBS in favor of corporate, municipal, and emerging-market bonds. There is also concern about the possibility of a breakout of inflation, although current inflation risk is not considered unmanageable, and of an unsustainable bubble in equity and fixed-income markets given current prices.
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Or you could alternatively read the actual minutes and find out that no one says anything about unmanageable inflation -
I didn't say anything about unmanageable inflation or write the news article. I said the fed minutes state serious concerns about their Quantitative Easy policies causing inflation and asset bubbles.
The Fed’s securities purchases have reduced mortgage yields and, to a lesser extent, Treasury yields. Current low bond yields are disruptive to management of fixed-income portfolios, retirement funds, consumer savings, and retirement planning. They may encourage unsophisticated investors to take on undue risk to achieve better returns. MBS purchases account for over 70% of gross issuance, causing price distortion and volatility in the MBS market. Fixed-income investors worry that attractive mortgage-backed securities are in very tight supply. Higher premium coupons carry too much exposure to prepayments, potentially led by new government support programs for housing. Many are concerned about the Fed’s significant presence in the market. They have underweighted MBS in favor of corporate, municipal, and emerging-market bonds. There is also concern about the possibility of a breakout of inflation, although current inflation risk is not considered unmanageable, and of an unsustainable bubble in equity and fixed-income markets given current prices.
Yes, they think they can manage the inflation risk, but there is a serious concern about higher inflation and unsustainable bubbles. This is an important consideration for anyone currently considering additional investments in stocks and bonds.
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You're right you didn't directly say it. You just provided the link to International Business Times who said it. The rest of the actual report which IBTimes seemed to gloss over is that their concerns about inflation are 2-3 years out.
My point is you can spread bad financial reporting if you want. Don't get upset when someone steps in and provides the correct information and let people come to their own conclusions.
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I think the main concern is the ~n-trillion QE/market manipulation is a inflation bomb waiting to explode. It presently has zero velocity though (isnt moving). When it does though it will probably bubble all assets, regardless. (my amateur reading). I do not know under what scenarios all this 'money' finally gets released and starts to affect prices. Not a clue.
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You're right you didn't directly say it. You just provided the link to International Business Times who said it. The rest of the actual report which IBTimes seemed to gloss over is that their concerns about inflation are 2-3 years out.
My point is you can spread bad financial reporting if you want. Don't get upset when someone steps in and provides the correct information and let people come to their own conclusions.
+1
Did Ben Bernanke recommend gold?
(Edit)
Can FIRECalc run options of adding gold in the mix?
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I don´t belive that there is an endless growth possible in a world with limited ressources.
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I don´t belive that there is an endless growth possible in a world with limited ressources.
I don't belive lots of things about ressources. What does that have to do with this conversation?
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I don't believe in Santa Claus.
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I think the main concern is the ~n-trillion QE/market manipulation is a inflation bomb waiting to explode. It presently has zero velocity though (isnt moving). When it does though it will probably bubble all assets, regardless. (my amateur reading). I do not know under what scenarios all this 'money' finally gets released and starts to affect prices. Not a clue.
I agree generally, but I don't think "bubble" is the right word. A bubble is an over-valuation that eventually corrects, i.e. it will eventually "pop". A high rate of inflation just makes the money worth less permanently, and yes would affect every asset class. We shall see how all this plays out, but my personal opinion is that gold is over-valued even with the inflation rate concerns caused by QE. If you really want to protect against inflation you should buy real estate with a mortgage, not buy gold.
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A high rate of inflation just makes the money worth less permanently, and yes would affect every asset class. We shall see how all this plays out, but my personal opinion is that gold is over-valued even with the inflation rate concerns caused by QE. If you really want to protect against inflation you should buy real estate with a mortgage, not buy gold.
Or TIPS (http://www.treasurydirect.gov/indiv/products/prod_tips_glance.htm). Or equities.
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A high rate of inflation just makes the money worth less permanently, and yes would affect every asset class. We shall see how all this plays out, but my personal opinion is that gold is over-valued even with the inflation rate concerns caused by QE. If you really want to protect against inflation you should buy real estate with a mortgage, not buy gold.
Or TIPS (http://www.treasurydirect.gov/indiv/products/prod_tips_glance.htm). Or equities.
Fair enough, but real estate with a mortgage is a double-hedge against inflation, whereas TIPS or equities are only single hedges. What do I mean? Real estate protects against inflation by:
1) the value of the real estate rises with inflation. Inflation does not change the value of real assets, just the value of the money used to buy them.
2) the value of your mortgage decreases with inflation. You owe X dollars to the bank. If suddenly massive inflation strikes and it takes X dollars to buy a candy bar (and everyone's salaries rise accordingly), you just successfully and legally bought a house with a candy bar.
You can also make it a triple-hedge by renting and:
3) raising the rent with inflation. Which is a perfectly natural thing to do, the value of living in the house is constant, the value of the rent should remain constant as well.
Caveat: if you are retired and living off of rental incomes then #2 and #3 are the same thing, so it's only a double-hedge.
Real-estate investors like Arebelspy will make out like a bandit during periods of high inflation.
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sherr you're ignoring all the other associated costs with real estate. Like repairs and property taxes which would also rise with inflation. Real estate is not some silver bullet to inflation. It is good but grant is right in listing more solid inflation hedges because diversity in investments will be able to ride out scenarios much better than trying to put all your eggs in mortgages.
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Also real estate doesn't protect you from builder saturation or other macro events that could depress rents or vacancies. It doesn't protect you from having to spend to keep up with minimum amenities or parking availability or other dynamic changes that can affect values. Of course one option is geographical distribution
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I think the main concern is the ~n-trillion QE/market manipulation is a inflation bomb waiting to explode. It presently has zero velocity though (isnt moving). When it does though it will probably bubble all assets, regardless. (my amateur reading). I do not know under what scenarios all this 'money' finally gets released and starts to affect prices. Not a clue.
Exactly! I have no idea either.
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TIPs are the fox guarding the henhouse.
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We should note that Bernake's primary motivation is to avoid deflation, so inflation is inevitable. We're simply trying to guess how high it will be.
With the government seriously in debt, it has some major motivations for playing with CPI and under-reporting inflation:
1. Higher tax revenue on both real gains and inflation simply increasing the reported value of assets.
2. Hidden tax on hoarders/savers. Leave your money sitting in cash and the government can inflate some of its value into paying for current spending.
3. Lowering the cost of debt repayment to creditors. Keep interest rates extremely low and report low inflation to creditors.
4. Lowering the cost of benefit and entitlement programs. If inflation underreported they can keep the required benefit increases down.
5. Inflating the GDP. Unreported inflation makes the economy look bigger.
6. Help the appearance of recovery. Unreported inflation makes it look like the economy is doing better. (This could explain why unemployment is very high despite recovery).
There's probably more, but that's off the top of my head.
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The government is not manipulating the CPI in any way other than what they have been doing since before the recession and QE. Since you're making the claim they are why don't you provide proof that the information from BLS is wrong or manipulated in such a way that it is suspect?
If you have no idea what the impact of QE will be in the future why don't you post that instead of links to reports on what some crap website says about what the actual experts are saying?
Until that excess money gets into the hands of the consumer there is no real threat of inflation. Currently it is sitting in the coffers of large companies. How is that money just sitting there not being put into circulation raising the price of gas for you right now? The drive of QE is for the banks to lend out money and to aid in banks de-leveraging. Looking at most of the economic reports of low growth and very slow job growth that money is not being used. So why do you think inflation is being under reported. I don't think inflation is under reported at all. It hasn't happened yet.
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sherr you're ignoring all the other associated costs with real estate. Like repairs and property taxes which would also rise with inflation. Real estate is not some silver bullet to inflation. It is good but grant is right in listing more solid inflation hedges because diversity in investments will be able to ride out scenarios much better than trying to put all your eggs in mortgages.
I am not ignoring anything. That's like saying that by recommending equities grant is ignoring the brokerage fees, which will also rise with inflation. Yes there are associated costs, there's no such thing as a free lunch, but your returns should be greater than the costs (otherwise why would you have bought it in the first place) and if returns and costs both rise with the rate of inflation then your cash flow will rise exactly in step with the rate of inflation. Yes diversity is good, which is why I never said grant was wrong. I simply said real estate was better. I thoroughly disagree that TIPS or equities are "more solid inflation hedges."
Also real estate doesn't protect you from builder saturation or other macro events that could depress rents or vacancies. It doesn't protect you from having to spend to keep up with minimum amenities or parking availability or other dynamic changes that can affect values. Of course one option is geographical distribution
True, but we aren't talking about any of those things, we're talking about inflation. Where did I ever say that real estate was the end-all-be-all of investing? All I said was that "If you really want to protect against inflation you should buy real estate with a mortgage, not buy gold."
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Define better. You put out some reasons to call it a "double-hedge" or "triple-hedge", but in what way is a mortgage a better hedge than say equities? I don't think a good analysis is just the number of pros vs cons but rather a dig into those pros and cons. Pull them apart and see how and why they benefit us.
Wouldn't a stock or sector which can easily pass the price increase to their market (oil/energy companies for example) be just as good?
No one said they were better. Large inflationary periods are dangerous to FIRE, we're just trying to list some ways to mitigate that danger. I'm not sure if you can definitively say one way is better than another. Each person's situation will be different.
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Define better. You put out some reasons to call it a "double-hedge" or "triple-hedge", but in what way is a mortgage a better hedge than say equities? I don't think a good analysis is just the number of pros vs cons but rather a dig into those pros and cons. Pull them apart and see how and why they benefit us.
I'll bite: You can live in it.
And, in case of extreme black-swan event (everything goes to shit) -- the utility of a house hasn't changed. You can still live in it (even if the value has gone to hell).
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the utility can dramatically change if you cant find a renter, or worse---leveraged, you cant cover costs. I presume we arent talking about your primary residence here, obviously
also I'm not really sure that real estate as a single/double/triple/penta-helix hedge against inflation holds water either. Historically real estate matches inflation: so we're good at a first pass. However real estate is presently at ++generational multiples of income out of the ordinary and seems to still be in the process of correcting in spite of our banksters best efforts to hide supply. Sure in the long run it probably works out.
Add to that the leverage factor and it seems to be a fairly muddy picture to claim that real estate is your inflation hedge. Sure it tends to do all right---with certain caveats. Such as a median place in a median area with a known stable supply of renters and all that.
Truth to be told I believe equities [with similar caveats] are more likely to insulate vs inflation in the long run. Throw in a mix of Tbills [incl TIPs] and some foreign equities and it sounds even better.
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Define better. You put out some reasons to call it a "double-hedge" or "triple-hedge", but in what way is a mortgage a better hedge than say equities? I don't think a good analysis is just the number of pros vs cons but rather a dig into those pros and cons. Pull them apart and see how and why they benefit us.
I'll bite: You can live in it.
And, in case of extreme black-swan event (everything goes to shit) -- the utility of a house hasn't changed. You can still live in it (even if the value has gone to hell).
Fair enough but in that context of shit hitting the fan someone else's gun can decide whether your house is yours or if you can live in it.
How about in the context of inflation or hyperinflation?
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how about this for 'inflation' protection :)
kids. lots and lots of kids! They all get jobs, pay their way through school, etc!
*I would also like a unicorn ranch to go with my magic wand against inflation
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Stop confusing retirement planning with inflation dammit.
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I thought this was a gold thread
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Sorry my comment was supposed to be a joke about kids being a retirement plan. Not meant to be taken seriously. :)
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but really isnt that the best plan of all? (5+ kids)
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Define better. You put out some reasons to call it a "double-hedge" or "triple-hedge", but in what way is a mortgage a better hedge than say equities? I don't think a good analysis is just the number of pros vs cons but rather a dig into those pros and cons. Pull them apart and see how and why they benefit us.
Wouldn't a stock or sector which can easily pass the price increase to their market (oil/energy companies for example) be just as good?
Well what I really mean by better is more profitable. Equities and gold and other things can easily be an inflation hedge. Most inflation hedges can be expected to keep their value in spite of inflation, and maybe in some cases (like equities if the company is still growing) can be expected to grow in absolute value.
Leveraged real estate is different in that it is virtually guaranteed to increase in absolute value in inflationary times. The value of the estate keeps pace with inflation on average, so that already puts it right up there with gold. But then on top of that the real value of the money you owe on the mortgage is decreasing with inflation, which means real wealth is being transferred to you. Add to that rental income that also adjusts for inflation, and you have a real-wealth making machine in inflationary times.
the utility can dramatically change if you cant find a renter, or worse---leveraged, you cant cover costs. I presume we arent talking about your primary residence here, obviously
Well sure something can always go wrong, but if you set reasonable rents in a reasonable area it's really not to difficult to find good renters.
also I'm not really sure that real estate as a single/double/triple/penta-helix hedge against inflation holds water either. Historically real estate matches inflation: so we're good at a first pass. However real estate is presently at ++generational multiples of income out of the ordinary and seems to still be in the process of correcting in spite of our banksters best efforts to hide supply. Sure in the long run it probably works out.
So your argument is that real estate is not a hedge against inflation because you think the current market is over-priced? Believing the market is in a bubble is a fine reason not to buy in at the moment, but that doesn't mean anything I've said is untrue.
Add to that the leverage factor and it seems to be a fairly muddy picture to claim that real estate is your inflation hedge. Sure it tends to do all right---with certain caveats. Such as a median place in a median area with a known stable supply of renters and all that.
Actually leverage is your friend in a big way during inflation. In the same way that non-inflation-protected savings loose value during inflation, non-inflation-protected debt transfers value to you during inflation. And if you can get interest rates in the 3 and 4% range like you can in the US today (which is below the average rate of inflation btw, meaning the bank is actually paying you to borrow money if the averages hold out!) then it's even better.
Truth to be told I believe equities [with similar caveats] are more likely to insulate vs inflation in the long run. Throw in a mix of Tbills [incl TIPs] and some foreign equities and it sounds even better.
Well you can certainly do that, I won't twist your arm. But consider this extreme example:
You buy a house for $100k and finance 100% of it with a mortgage. Considering no other factors, you have a real net worth of 0. We suddenly a ridiculously high one-year-only inflationary period of 100% inflation. That means that any money you had before is now only worth half of what it was, and presumably people's salaries have all doubled.
The house itself is a real asset, like gold, so it's value should remain constant in real terms. The house is now "worth" $200k in after-inflation dollars.
The number of dollars you own on the mortgage (we'll assume you didn't have to make any payments or be charged interest the first year for simplicity) has not changed. You still owe $100k, and your net worth is now $100k thanks to the value of the house increasing. But since inflation has caused everything to double, both how much things cost and how much people make, real value of that debt has halved. It is twice as easy to pay that off as it was before. So while you don't see the effect on your instantaneous net worth, in reality you can say you've gained more real wealth over the lifetime of the loan thanks to being able to pay off your mortgage with cheaper dollars. In fact, you've saved half of the real value of the mortgage, so have gained $50k in real dollars over the lifetime of the loan thanks to inflation. The bank loaned you $100k pre-inflation dollars and you only had to pay them back the equivalent of $50k pre-inflation dollars.
If you want you can add to that picture renters who's rent you raise with inflation, and you have yet again another hedge. Show me another asset class that transfers that much real wealth to you just from inflation, and I'll agree that real estate is not the king of inflation hedges.
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wow nice counterpoints: there is substantial systemic risk to landlording regarding underlying housing values and various other macro factors [employment, behavior, etc]. If you think that exempts you from the goal of "protecting oneself from inflation", lets just agree to disagree. Also I'm not really sure you can guarantee that housing (or any unique sector, really) will auto-magically rise with the CPI linearly. Getting back to more salient supply/demand and employment issues, primarily.
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sherr you're ignoring all the other associated costs with real estate. Like repairs and property taxes which would also rise with inflation. Real estate is not some silver bullet to inflation. It is good but grant is right in listing more solid inflation hedges because diversity in investments will be able to ride out scenarios much better than trying to put all your eggs in mortgages.
OMG this thread has tangentialised a bit. I thought the issue was gold, but i guess we morphed into inflation and real estate...
I still insist the only answer to the OP "Is Gold Mustashian"? is :
- No.
- BUT, you could use some (or all) of my IMHO recommended maximum 5% of your large stash to 'do what you f&*kin want' asset allocation catagory to buy gold. Its your money, and I've always said a small part can be used to pursue your (probably highly non-economic yield) dreams.
Gold is a bad investment. It doesnt protect against inflation. But I'll defend your right to gamble away 5% of your stash on principal. While pointing out that if (as a true inflation hedge, guaranteed by the Government) you have (as you should if you can) a 30 year nominal terms fixed rate mortgage, you have a 3.5% cost of capital, and so you are borrowing money to buy whatever is in that 5% 'do what you want' allocation.
Gold is pretty stupid, IMHO.
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What a tangent,
I am also with MR Mark on is gold anti mustachian. No
I invest following the idea of a permanent portfolio
So have 25% gold and am adding more now when have had a 50% correction since the GFC correction.
Selling some of those high flying stocks, since they hit all time highs.
P.S. I am contrarian so I love it when an asset is out of favour with the crowd.
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How could you possibly construe gold as "out of favor with the crowd" right now?
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Just listen to the number of people saying gold is bad, gold is going down, gold is an unproductive asset.
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In the investing public, or here? I think gold bugs outnumber skeptics in the investing public, even if not here.
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In the investing public, or here? I think gold bugs outnumber skeptics in the investing public, even if not here.
I'd probably disagree, I think gold bugs are a small but vocal minority.
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Just listen to the number of people saying gold is bad, gold is going down, gold is an unproductive asset.
It's still getting way more hype than negativity right now, IMO.
As it continues to drop, that will change. Buying right now, thinking you're a contrarian, is a risky move, but best of luck to you.
At least you're rebalancing according to strict rules based on your AA, that says quite a bit for you, in my opinion.
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Just listen to the number of people saying gold is bad, gold is going down, gold is an unproductive asset.
It's still getting way more hype than negativity right now, IMO.
It definitely is. And, IMO, that is the international sign of "get the hell out of here." By the time the masses are "jumping in" is the time to "jump out." When you can't turn on the TV without seeing a "buy gold" commercial, you know we're near (if not at) the top.
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It's hard to not notice that Gold was on a solid ~11 year run until Sep 2011 where it peaked ~1900 in nominal dollars. Since then it is off over ~500. Tea-leave prognosticators suggest any number of various macro reasons, such as 'true inflation' not showing up as expected, equity market bullishness, expected rising interest rates in the near term make Tbills and other fixed income more attractive, etc all.
I mention this because it seems like the recent posts in this thread dont really seem to acknowledge that we're a healthy bit past [and a couple years now] the recent peak. Where does it go from here? No idea.
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What a tangent,
I am also with MR Mark on is gold anti mustachian. No
I invest following the idea of a permanent portfolio
So have 25% gold and am adding more now when have had a 50% correction since the GFC correction.
Selling some of those high flying stocks, since they hit all time highs.
P.S. I am contrarian so I love it when an asset is out of favour with the crowd.
No. I think gold is not a mustashian investment. No way.
Also, the gold bugs tend to be doing it for weird fears about (the coming hyper-) inflation, government fiat currency , Ben Bernanke, apocalypse, zombie attack, etc. These are not people in say, north Korea, but the USA. They are crazy.
Most others are serious tulip speculators, who claim strange powers of market intuition and a sense of the market so precient they should perhaps be candidates for the next fed chairman. Italy, for example, have 150 tonnes of the stuff, and are broke. Sell time? It's market timing with a shiny metal. Admit it.
Very very few are doing it in a conscious attempt to emulate one of the original " permanent portfolios" , one of which indeed used a 25% gold allocation. But that's a bit like driving a model t ford because you insist the original cars could never be improved.
They have. See bogle.
Until I can see an equiv. Of FIRECALC with gold, or some other whole market analysis, not for mustashians. And even then, like I said, never more than 5% of your stash, YMMV, and beware of people who charge fees in return for improving your investment success... there are much better answers to inflation and even country risk.
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Interesting article and video
http://seekingalpha.com/article/1514852-now-everyone-knew-the-gold-plunge-was-coming?source=yahoo
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I've picked $1250 as an arbitrary point to buy some more. I'm hardly a permanent portfolio advocate, but in this person's estimate, it's as good a price as any to add to the [super tiny] gold pile :)
If it tests 1100, 1000,etc, those will be even nicer!
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I've picked $1250 as an arbitrary point to buy some more. I'm hardly a permanent portfolio advocate, but in this person's estimate, it's as good a price as any to add to the [super tiny] gold pile :)
If it tests 1100, 1000,etc, those will be even nicer!
Why that number?
Why not set a percentage of your portfolio, then as it goes down you purchase more at cheaper prices, and as it goes up you rebalance out of it.
I don't understand the logic of picking a random price and then buying ... some? A lot?
Do you have a written investment plan that includes Gold?
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Yah, he wrote it in the post above yours. Duh.
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Yah, he wrote it in the post above yours. Duh.
(https://i.chzbgr.com/maxW500/6621025792/h9F063642.jpg)
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since this thread is about opinions, I'm not particularly sold on commodities nor am I on gold. However most would consider me a "gold bug" because I consider owning 'some' instead of 'none'. Fair enough
however [heh], I am sold on the blackswan/guns/ammo/water/food/ham radio/prepper value of a small allocation to gold/silver. Max of 2% of portfolio value is my personal theory.
Plus to be honest I'm a coin collector hoarder. And the only thing more awesome than collecting silver is gold. JMHO. Having a circulated $20 St. Gaudens in my pocket makes me very happy.
This is my personal position on gold. Unlike most assets, there are substantial transaction costs and I'm uber-market-timing my way into gold based on what I "feel" is a more appropriate value target [1250]. Yes that sounds ludicrous and yes I'm ok with it. Really I'm just being a coin-collector with a price target. For me to hit 2% of portfolio value at current trading prices I still need to buy ~10 more double-eagles heh. Can't wait lol. Non-productive asset indeed :)
I try to buy one every other month or so. Apmex is my friend
(http://www.coinsonline.com/wp-content/uploads/2011/09/gaudens.jpg)
Balancing physical is tricky, but like the rest of my portfolio balancing is best done through purchases at this point unless gold hits like 10k/oz or something cray like that.
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Sorry to see the large losses in gold, but I was wondering if the permanent portfolio is working in total over the past several years as stocks are up. Ie are you getting the expected yield when annualized over the past several years?
Anybody doing the permanent portfolio? Are the bands being hit? Any information on how the latest events are impacting the operations of the PP would be interesting. Share how the current events are affecting the buy and sell operations.
Good luck!
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Sorry to see the large losses in gold, but I was wondering if the permanent portfolio is working in total over the past several years as stocks are up. Ie are you getting the expected yield when annualized over the past several years?
Anybody doing the permanent portfolio? Are the bands being hit? Any information on how the latest events are impacting the operations of the PP would be interesting. Share how the current events are affecting the buy and sell operations.
Good luck!
Yeah people are freaking out over on the PP forum. Many have hit rebalance bands, some are rebalancing early, and some are abandoning the PP.
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Yeah people are freaking out over on the PP forum. Many have hit rebalance bands, some are rebalancing early, and some are abandoning the PP.
So they (the latter) were just market timing. Having an investment plan and asset allocation is supposed to help prevent that silliness - they bought high, now they're selling low.
We're only back to 2010 prices, right?
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Not quite market timing but close enough I guess. When I say "people" I don't mean "most people." Plenty of level heads over there too.
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even the most ardent frothing gold bug has got to be taking a little break from their "WOOHOOO!!! GOLD IS ON SALE BOYS, BACK UP THE TRUCK!!11" stuff
you know, pretty clear downward trend here. Maybe wait a day or three after depositing your paycheck and heading to the gold store next time :)
supposedly India just announced new restrictions regarding financing gold yesterday: looks like they might be trying to protect their citizens from losing purchasing power here as they are rather ravenously absorbing supply here with the price drops (and happy about it!!)
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I haven't hit any rebalancing bands, but I was contributing to the lagging asset. Some of the people over there posted some pretty reasonable rationale for just dropping an even amount into all of the assets so that you can hit a rebalancing band. This is my first month doing that, so I'm not really too close.
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The thing is, the PP, if you follow it, is for exactly this sort of situation. Gold drops? No need to panic, you sell the other ones and rebalance and buy more.
Equities crash? Okay, sell some gold and bonds and use some of your cash to rebalance and buy more equities.
Isn't the point of the PP to have the other 3/4 of your assets there for if/when one of them is crashing? You don't panic sell out of that when it crashes, but buy more of it via rebalancing.
I just don't get people who don't even bother to understand the philosophy behind their investment strategy.
Oh well, it's their money.
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more than that I think it's just "...everybody has a plan until they get hit in the mouth"
everybody loves equities until there's a crash, everybody loves bonds in a recession, everybody loves gold when it goes nuts, etc
currently, those holding gold and bonds...are being hit in the mouth
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more than that I think it's just "...everybody has a plan until they get hit in the mouth"
everybody loves equities until there's a crash, everybody loves bonds in a recession, everybody loves gold when it goes nuts, etc
currently, those holding gold and bonds...are being hit in the mouth
I'm such a contrarian.. The drops make me want to buy, and I have to remind myself not to try and time the market!
That was a good way of explaining it though, thanks. Mike Tyson quotes should probably be used more to explain the market.
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I think the reason people are abandoning the PP is that the gold drop is not being compensated by other rising assets. So what we see is a drawdown approaching the size seen in 2008, but without accompanying financial crisis. In other words, the underperformance relative to the s&p is pretty spectacular.
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I think the reason people are abandoning the PP is that the gold drop is not being compensated by other rising assets. So what we see is a drawdown approaching the size seen in 2008, but without accompanying financial crisis. In other words, the underperformance relative to the s&p is pretty spectacular.
They're not always going to be perfectly inversely correlated. A hedge like that just doesn't exist. There will be some "lag" time.
Oh well. Best of luck to those now searching wildly for a new AA. :)
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The thing is, the PP, if you follow it, is for exactly this sort of situation. Gold drops? No need to panic, you sell the other ones and rebalance and buy more.
Equities crash? Okay, sell some gold and bonds and use some of your cash to rebalance and buy more equities.
Isn't the point of the PP to have the other 3/4 of your assets there for if/when one of them is crashing? You don't panic sell out of that when it crashes, but buy more of it via rebalancing.
I just don't get people who don't even bother to understand the philosophy behind their investment strategy.
Oh well, it's their money.
Yea for sure. "Happily" for me, pretty much everything took a hit recently, so the equally weighted contributions probably couldn't have started at a better time!
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Mike Tyson quotes should probably be used more to explain the market.
Sorry to derail the thread, but in the name of the internets, I must explore this.
"I'd like to get a real estate license, maybe sell insurance."
"I'm the biggest fighter in the history of the sport. If you don't believe it, check the cash register."
"Everybody in boxing probably makes out well except for the fighter."
"I'm just looking for some balance in my life."
"I put people in body bags when I'm right."
"Real freedom is having nothing."
"At one point, I thought life was about acquiring things. Life is totally about losing everything."
"You're smart too late and old too soon."
"The act of treachery is an art, but the traitor himself is a piece of shit."
http://en.wikiquote.org/wiki/Mike_Tyson
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Mike Tyson quotes
Beautiful!
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I believe Tyson was noted as saying he was intentionally quoting joe Louis, but yeah Tyson is known for saying it often
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The thing is, the PP, if you follow it, is for exactly this sort of situation. Gold drops? No need to panic, you sell the other ones and rebalance and buy more.
Equities crash? Okay, sell some gold and bonds and use some of your cash to rebalance and buy more equities.
Isn't the point of the PP to have the other 3/4 of your assets there for if/when one of them is crashing? You don't panic sell out of that when it crashes, but buy more of it via rebalancing.
I just don't get people who don't even bother to understand the philosophy behind their investment strategy.
Oh well, it's their money.
+1
Exactly.
I'm a Permanent Portfolio holder and from my perspective it's performing just as advertised. Gold is down 25% this year and bonds are also struggling but I'm only down a few percent overall. I buy the lagging asset as I save more money, so recently my money has gone into gold at a nice discount. Some day stocks may crash like in 2008 or bonds will take a real beating and the extra gold I'm buying now plus my cash reserves will similarly protect me.
If I knew exactly when gold will turn around I'd of course wait out the correction, but nobody knows that. However I do know that macroeconomic shifts take time to level out and shouldn't be judged on a daily or even monthly basis. So I choose to follow the rebalancing bands and worry about things I can control like optimizing my savings rate.
No panic here. On the contrary, watching how a portfolio performs when a major asset is under fire is an informative test. As someone who was 100% stocks in 2008, I have absolutely no complaints about the PP right now. :)
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Well played, Tyler.
I'm not a PP follower personally, but I respect that you're sticking with it. Sounds like you're doing exactly what you should be given your AA.
I do find it interesting that one of the major selling points of the PP is that it makes it easier to avoid panicking when an asset crashes, because you have 75% of your portfolio in other assets that (ostensibly) are doing okay, yet people are still panicking..
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I think the panic comment is perhaps overstated. IMHO, dropping a few percent over the short term isn't really panic-inducing except for new investors with unrealistic expectations. So I believe it's more an issue of envy.
Human instinct is to look around at other investments doing well at any given time (like heavy stock portfolios right now) and get jealous. But the ones that bail on their plan for this reason will also be bailing on the hot investment later when it eventually cools. Always selling low and buying high. That's a basic investing psychology hurdle that every investor must overcome regardless of portfolio choice.
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It would be great if FIRECalc would add a gold option to the mix.
Maybe some of the advertising revenue of the forum could be used to get a sponsored partnership with the FIRECALC
People.?
A version aligned with MMM would allow a lot more fact checking of our opinions and debates on this forum!
The problem I have with the permanent portfolio is that only 25% is in equity, and the other asset classes are all things I think will underperform going forward, cash, long term government bonds, and gold. Having 75% of my stash in zero - low yield assets doesn't seem sustainable.
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It would be great if FIRECalc would add a gold option to the mix.
Maybe some of the advertising revenue of the forum could be used to get a sponsored partnership with the FIRECALC
People.?
A version aligned with MMM would allow a lot more fact checking of our opinions and debates on this forum!
The problem I have with the permanent portfolio is that only 25% is in equity, and the other asset classes are all things I think will underperform going forward, cash, long term government bonds, and gold. Having 75% of my stash in zero - low yield assets doesn't seem sustainable.
The PP is not very "mustachian" in terms of being aligned with MMM philosophy. Because its designed such that it will always underperform in times of prosperity. Thus, if you really use the MMM optimism gun, you would probably be 100% equities.
The PP is more appealing to those risk averse souls who think that the US could see a japan-like scenario over the next few decades.
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It would be great if FIRECalc would add a gold option to the mix.
You can do a PP-like scenario in Firecalc via the "Your Portfolio" tab. Use the fourth option:
A portfolio with random performance, with a mean total portfolio return of % and variability (standard deviation) of %. Assume an inflation rate of %.
You just need to decide what numbers to plug in for "Mean total portfolio return" "Variability" and "Inflation Rate."
There was a thread about this in the PP forum. For example, one forum member offered the following: 1975-2012: 8.85% CAGR, 7.81% SD, 3.9933% CPI
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The PP is not very "mustachian" in terms of being aligned with MMM philosophy. Because its designed such that it will always underperform in times of prosperity. Thus, if you really use the MMM optimism gun, you would probably be 100% equities.
I may own an optimism gun, but I'm not investing in them. ; )
Even MMM is not 100% equities (note the expensive rental house providing steady fixed income), and there's an entire section of the forum on real estate. Diversification of capital is really just a form of Mustachian safety margin. One can choose to diversify however they like, but I do think it's a good thing!
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I dunno, I got lucky I guess. I bought a bunch back in 2007-2010 time frame in the form of First Spouse coins. I really liked the idea of collecting them. I was certainly not looking for an investment, I was just dumb about money and didn't know what do with what I was making. I was buying all kinds of pieces of "collectible" Japanese-anime inspired plastic crap and decided to buy something that might actually be worth some money later instead.
When the housing market began to tank, I was torn on continuing to collect, or to sell out and buy a house. I wound up selling out and got my downpayment that way.
I wish I could say I planned it, but it was just luck, really.
I decided to look up gold prices, just out of curiosity, and found
http://www.forbes.com/sites/rickferri/2013/04/22/gold-bugs-swatted-again/
Kinda interesting to see the inflation adjusted prices.
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Gold does not like a positive economic outlook
http://www.cnbc.com/id/100866234?__source=yahoo%7Cfinance%7Cheadline%7Cheadline%7Cstory&par=yahoo&doc=100866234%7CStrong%20Jobs%20Report%20Is%20Gol
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Yeah, if I was a market timer I'd strongly consider shorting gold. I think we will not only go below 1200, but below 1000 (to around 800-900) even after the large April and June drops. It has further to fall. I just don't know when exactly that will happen.
And take two decades to come back (in real dollars - it'll come back in nominal due to inflation much before that) when the next gold bubble happens..
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That guess seems as good as any. I like to point out that production costs which some like to say hold some kind of a "floor" for gold actually only account for like 1.6% for total annual production vs total supply. I agree we're likely to test $1k within a year or so. Also not all mines are equal with production costs. Some are around 1150--sure, but many an remain profitable north of 6-700 they say so production will drop only somewhat as we cross 1k.
IMO we are watching classic capitulation and bull traps in gold price since last year. I'm no 'technical' (hate this application of the word) analyst by drawing squiggly 100-150 day moving avg targets but this price rout is looking ugly! On the plus side people are disposing their ngc/rated st gardens for not much premium now!
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Jim Rogers says gold could test $900, but he is not selling. Interesting interview on his global view.
http://finance.yahoo.com/news/jim-rogers-gold-bottom-mystics-104405878.html
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It's a yellow rock that doesn't produce anything for you. It just goes up and down - supply and demand- based on how many people at any one time think it is a yellow rock, vs those that think it is an asset.
No interest, no dividends, just up and down. There are time when it would be nice to have gold prices skyrocket during a recession so that you can sell off the top and buy stocks low...
But somewhere, someone, is holding a tiny ounce of gold in their hand and saying "I paid $1600 for this???"
It's all perception. I'm too practical to grasp how a useless shiny rock can be worth much of anything.
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But tying all your assets (100%) to fiat backed currencies/banking/systems is perfectly practical? There have been many banking/govt failures including revolutions we can use as examplesin recent history. I guess I am taking issue with your use of the word 'practical'. I'm sure you will disagree.
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But tying all your assets (100%) to fiat backed currencies/banking/systems is perfectly practical? There have been many banking/govt failures including revolutions we can use as examplesin recent history. I guess I am taking issue with your use of the word 'practical'. I'm sure you will disagree.
Yep. If what you describe happens, and I had the bullets, food, and know-how to survive it, I would not trade a bit of it for your stash of gold. Might make you a sandwich out of compassion.
The new dictatorship would take all your gold anyway.
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Fair enough, perhaps we can prepare prepper/militia notes, but precious metals are likely to be useful in practically any such scenario. Of course, you will disagree.
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But tying all your assets (100%) to fiat backed currencies/banking/systems is perfectly practical? There have been many banking/govt failures including revolutions we can use as examplesin recent history. I guess I am taking issue with your use of the word 'practical'. I'm sure you will disagree.
Yep. If what you describe happens, and I had the bullets, food, and know-how to survive it, I would not trade a bit of it for your stash of gold. Might make you a sandwich out of compassion.
The new dictatorship would take all your gold anyway.
You should be stashing something you can make bullets out of!
I'm guessing the point is not all the countries off all the world are going to fail at the same time so the plan is to sell the gold in a country that is stable?
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NICE bounce in Gold on the Asian markets after the Bernak announced "Taper Off"
If tapering was the whole reason for the drop from 1400 to 1200, does that mean it'll rally back up?
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Bernanke doesn't understand Gold, but this article talks about the various issues around the value.
http://www.marketwatch.com/story/bernankes-only-partly-right-about-gold-2013-07-19?siteid=yhoof2
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Interesting discussion on gold, but what about silver as an alternative? It holds many similar aspects to gold, but seems to have more industrial uses as well.
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Interesting discussion on gold, but what about silver as an alternative? It holds many similar aspects to gold, but seems to have more industrial uses as well.
This is probably something for another thread... I believe both silver and gold are equal in their investment purposes. Hardcore goldbugs will say the industrial use of silver is what disqualifies it as alternative "money." Hardcore silverbugs on the other hand will use the industrial aspect of silver as it's superior quality vis a vis gold.
Again that's a whole different can of worms.. :)
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Interesting video and story. This stuff always sounds like mumbo jumbo to me, vs. facts and logic. They say it with authority and they see xyz, the host calls him on this being a short term play, which the prognosticator agrees. Interesting on how to put a value on an asset that sits in storage.
http://finance.yahoo.com/blogs/breakout/landscape-gold-changed-forever-says-trader-124316193.html
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http://finance.yahoo.com/blogs/breakout/landscape-gold-changed-forever-says-trader-124316193.html
http://www.youtube.com/watch?v=ZpmIBJ_MKas
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Gold's Wild Ride - Graph that shows the various up and downswings and why they think they occured. I think this shows that it is not a stable investment, but atleast it is going back up again.
http://blogs.marketwatch.com/thetell/2013/08/16/golds-wild-ride-whats-next-for-the-yellow-metal/
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The Indian Rupee has devalued 18% on the dollar will this hurt or help the price of Gold. Two opposite positions, some heads & Shoulders, and a few other reasons pro and con. Interesting perspective though.
http://finance.yahoo.com/blogs/talking-numbers/biggest-gold-story-no-one-talking-174713718.html
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Second time I have seen this pop up on my radar.
The whole article is really about India implementing capital controls.
And trying to force its people to hold a devaluing currency.
Indian consumers are increasingly turning to gold to hedge their devaluing currency. That has the Reserve Bank of India nervous about capital leaving the country and it led the country to curb imports. Last week, the country raised import duties to 10% on gold and banned the importing of gold coins and medallions.
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Gold's Wild Ride - Graph that shows the various up and downswings and why they think they occured. I think this shows that it is not a stable investment, but atleast it is going back up again.
http://blogs.marketwatch.com/thetell/2013/08/16/golds-wild-ride-whats-next-for-the-yellow-metal/
For a historical perspective you may be interested in a previous bull market in which there was a 50% correction before the start of the really big moves.
http://goldnews.bullionvault.com/gold-bull-022620136 (http://goldnews.bullionvault.com/gold-bull-022620136)
If history where to repeat the low would be around $900-$950
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What do you think about Gold going back to $1,400? Is the market predicting no tapering?
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Yes, gold is pretty much anti-mustashian. Still.
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Sure glad I didn't short gold at $1,200 - that would hurt! If you went long though, a decent 17% return so far.
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To me the forum post relates to the nature of the "investment" vs. the price of the investment. It is a unique investment, that seems very contrary to Mustachian beliefs. Some of the beliefs or traits that appear to be Mustachian relate to caring for the environment, not owning things that need security systems and protection, not buying the shiniest trinkets, buying items that are useful, investing based on income potential, having an optimistic attitude vs. a pessimistic view, etc. The forum wasn't to discount Gold as an investment, but to understand how it relates to the beliefs of members. I hope it goes up in value as many members are Permanent Porfolio investors.
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Wow, another bump up to $1,418. Think it'll go all the way back to the $1,600 mark sooner or later?
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Wow, another bump up to $1,418. Think it'll go all the way back to the $1,600 mark sooner or later?
Well over the long term gold returns no better than inflation. Inflation probably 2 to 3 percent per year as a long term average. So yes, most likely eventually gold will reach 1600 - and in fact will likely reach any arbitrary price higher than the current price. In the short term it could go most anywhere, both higher or lower...
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Well over the long term gold returns no better than inflation. Inflation probably 2 to 3 percent per year as a long term average. So yes, most likely eventually gold will reach 1600 - and in fact will likely reach any arbitrary price higher than the current price. In the short term it could go most anywhere, both higher or lower...
So it's a better investment than bonds, which appear to be losing money right now?
Also, what if inflation is drastically under-reported, per shadowstats.com - that would lead to Gold "dramatically" outperforming Bonds, simply by matching devaluation of the dollar.
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Also, what if inflation is drastically under-reported, per shadowstats.com...
Thank you for that website, it provided lots of chuckles. I love his annual "hyperinflation report" headlines:
2009: "Hyperinflationary Depression Remains Likely As Early As 2010"
2010: "High Risk of Ultimate Dollar Crisis Unfolding in Year Ahead"
2011: "United States Nears Hyperinflationary Great Depression"
2012: "U.S. Hyperinflationary Great Depression Moves Ever Closer"
This guy's "alternate calculation" for inflation seems to be to take the current CPI and add 3%. If BLS inflation measures have really been so far off for so long, people would have noticed a long time ago.
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Mod note:
Let's not get into another "is inflation being underreported" thread.
There are several of those already, go do a search, and let's keep this about gold.
Thanks! :)
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Article on Gold. Gold can't compete with stocks on a long term basis
http://www.fool.com/investing/general/2013/09/07/gold-cant-compare-with-stocks-in-the-long-term.aspx
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Article on Gold. Gold can't compete with stocks on a long term basis
http://www.fool.com/investing/general/2013/09/07/gold-cant-compare-with-stocks-in-the-long-term.aspx
Neither can cash or bonds. Do you have any of those?
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Neither can cash or bonds. Do you have any of those?
Or real estate, for that matter (if you're just looking at property value, at least).
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Neither can cash or bonds. Do you have any of those?
Or real estate, for that matter (if you're just looking at property value, at least).
Real Estate has always been a terrible investment, unless you use leverage! With 30 year mortgages, locked in at sub 4% I am excited to see how our rentals hold up over the next 30 years.
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Neither can cash or bonds. Do you have any of those?
Very little long term bonds. I probably have more gold and silver that I haven't sold, then cash or long term bonds. I actually have very little, short term bonds but that will probably change in the next few years as I reach FI.
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Neither can cash or bonds. Do you have any of those?
Very little long term bonds. I probably have more gold and silver that I haven't sold, then cash or long term bonds. I actually have very little, short term bonds but that will probably change in the next few years as I reach FI.
Wow, you mean you own all these underperforming assets? Do you feel the ANTImustachian shame?
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Neither can cash or bonds. Do you have any of those?
Very little long term bonds. I probably have more gold and silver that I haven't sold, then cash or long term bonds. I actually have very little, short term bonds but that will probably change in the next few years as I reach FI.
Wow, you mean you own all these underperforming assets? Do you feel the ANTImustachian shame?
Gold, Silver, and Cash make up less than .5% of my Net Worth, but yes I do feel bad about having a coin collection sitting in a closet that could be sold for $6-8k. It is clutter, but if I spent the time to maximize the value it would take a bit more time than I have been willing to spend. Lately, I have been seeing it as more of a project when I retire, which is probably just an excuse to put it off.
The amounts that I am keeping in unproductive assets is within my comfort zone. Getting it down to zero is not worth the effort. So cost/benefit I am pretty comfortable with having these underperforming assets.
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Not sure how they come up with $1,200 for industrial use. Are there other alternatives once the price goes above $1,200?
http://www.thestreet.mobi/story/12107960/1/why-gold-isnt-going-up.html?puc=yahoo&cm_ven=YAHOO
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Gold useless in the Apocalypse.
Interesting take on gold, paying off debt, etc.
http://blogs.barrons.com/focusonfunds/2013/12/27/gold-useless-in-the-apocalypse/?mod=yahoobarrons&ru=yahoo
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Maybe someone already said this, but I'd recommend everyone review Warren Buffet's essay on gold in last years letter to Berkshire shareholders.
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I like owning real property (raw land and commercial property) as part of my overall asset allocation and as a balance to my paper assets (equities and fixed income). I even own a little gold that I bought on a whim 20 years ago. The gold has done well recently but I have never calculated if I would have been better off with it in the market.
A few years ago, Rick Ferri and Larry Swedroe had a lengthy debate about the value of owning commodities as a specific asset class in a portfolio on the Boggleheads Blog. Might be worth a look.
Here is an interesting statistic:
"One dollar invested in gold in 1801 would be worth $73 by 2011.
One dollar invested in the US Stock Market in 1801 would be worth $10.15 million by 2011."
I know where I want the bulk of my investments.
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Here is an interesting statistic:
"One dollar invested in gold in 1801 would be worth $73 by 2011.
One dollar invested in the US Stock Market in 1801 would be worth $10.15 million by 2011."
I know where I want the bulk of my investments.
When we find that 210-year-old retiree we should ask him how his investments worked out in real life.
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Here is an interesting statistic:
"One dollar invested in gold in 1801 would be worth $73 by 2011.
One dollar invested in the US Stock Market in 1801 would be worth $10.15 million by 2011."
I know where I want the bulk of my investments.
When we find that 210-year-old retiree we should ask him how his investments worked out in real life.
Mayhaps you're missing the point of the statistic.
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Mayhaps you're missing the point of the statistic.
Got it just fine. Just think it's overly simplistic.
200 years of growth is great -- that's why I also own plenty of stocks. But the stock market goes through decade-long periods of low or negative real returns all the time (we just emerged from one that started in 2000). The trick is constructing a portfolio that provides reliable returns when you personally need the money and can't wait things out. Markets can stay irrational longer than you can stay solvent.
I personally like gold (and bonds) for just this purpose.
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Did people harvest their tax losses? Interesting concept to stay gold, yet take advantage of the losses this year. Last day, but still time to line this up with broker and tax professionals.
http://blogs.barrons.com/focusonfunds/2013/12/30/harvest-your-gold-etf-losses-immediately-says-ius-nadig/
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Here is an interesting statistic:
"One dollar invested in gold in 1801 would be worth $73 by 2011.
One dollar invested in the US Stock Market in 1801 would be worth $10.15 million by 2011."
I know where I want the bulk of my investments.
When we find that 210-year-old retiree we should ask him how his investments worked out in real life.
Mayhaps you're missing the point of the statistic.
IMO, the point isn't "gold sucks as a growth investment." I mean -- it does -- but for me that was never the point of gold. The point of gold is NOT to grow, but to be stable. I'm sure there are many cherry picked stats out there that can find years where it either grows a lot (or loses a lot) ... but the point of it is to have an entity that you buy for $100 and some years later it will buy the same amount of "stuff".
... now, I'm under no false impression that when doomsday comes, I'll have trouble finding a buyer for gold. I am relatively certain doomsday is something that cannot be prepped for.
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The point of gold is NOT to grow, but to be stable.
It seems like TIPS might be a better choice given this goal. They maintain buying power with much lower volatility than gold. You might even get some real returns to boot. Ditto real estate, whose price should track inflation over time as well as deliver a real return beyond inflation. I haven't run the numbers, but I suspect real estate also has less volatility in spite of recent turbulence.
That's not to say gold doesn't have some diversifying value, but it certainly doesn't have a monopoly on purchasing power stability, and some assets seem to deliver that and more, all at a lower volatility.
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The point of gold is NOT to grow, but to be stable.
It seems like TIPS might be a better choice given this goal. They maintain buying power with much lower volatility than gold. You might even get some real returns to boot. Ditto real estate, whose price should track inflation over time as well as deliver a real return beyond inflation. I haven't run the numbers, but I suspect real estate also has less volatility in spite of recent turbulence.
That's not to say gold doesn't have some diversifying value, but it certainly doesn't have a monopoly on purchasing power stability, and some assets seem to deliver that and more, all at a lower volatility.
Maybe that was too terse. The point is to be stable and liquid and independent of government whims, etc.
And I'm not trying to say gold would be the only thing that would satisfy these goals -- or that I'm really even a gold bug. I do think it has a niche. I can honestly say I don't own any. I probably would if the gold bugs hadn't run the price up to stupid levels (which violates my "stable" claim ... and is why I don't currently want it.)
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How do you figure gold is remotely stable? Gold prices fluctuate like mad (See the 50% drop between 1980 and 2000 and then the 4x+ rise over the next ten years).
Now the stats on gold using 1801 are deceptive since gold was price fixed for most of those periods. If you look at just 1972 (or whatever the date was when we went off the gold standard) to now gold performs very similar to the stock market. But that is a very short history (i.e. if you asked this question in 2000, gold was a big loser).
Here is an interesting statistic:
"One dollar invested in gold in 1801 would be worth $73 by 2011.
One dollar invested in the US Stock Market in 1801 would be worth $10.15 million by 2011."
I know where I want the bulk of my investments.
When we find that 210-year-old retiree we should ask him how his investments worked out in real life.
Mayhaps you're missing the point of the statistic.
IMO, the point isn't "gold sucks as a growth investment." I mean -- it does -- but for me that was never the point of gold. The point of gold is NOT to grow, but to be stable. I'm sure there are many cherry picked stats out there that can find years where it either grows a lot (or loses a lot) ... but the point of it is to have an entity that you buy for $100 and some years later it will buy the same amount of "stuff".
... now, I'm under no false impression that when doomsday comes, I'll have trouble finding a buyer for gold. I am relatively certain doomsday is something that cannot be prepped for.
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As a matter of monetary philosophy, one can argue that gold is stable and it's the value of fiat currency (the dollar) that fluxuates. But that's just a matter of perspective.
Practically speaking, gold is very volatile. Just as stocks are very volatile. That characteristic is actually why some people like gold - as a powerful foil to a volatile stock/bond portfolio that reacts to very different market forces. Add several uncorrelated volatile assets together, and (counterintuitively) you decrease your overall portfolio volatility. Incorporate a rebalancing strategy, and you can also make money buying low and selling high.
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Didn't know gold was unstable....
Better get it out of my bunker before it goes nuclear..... :P
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How do you figure gold is remotely stable? Gold prices fluctuate like mad (See the 50% drop between 1980 and 2000 and then the 4x+ rise over the next ten years).
IMO, the point isn't "gold sucks as a growth investment." I mean -- it does -- but for me that was never the point of gold. The point of gold is NOT to grow, but to be stable. I'm sure there are many cherry picked stats out there that can find years where it either grows a lot (or loses a lot) ... but the point of it is to have an entity that you buy for $100 and some years later it will buy the same amount of "stuff".
... now, I'm under no false impression that when doomsday comes, I'll have trouble finding a buyer for gold. I am relatively certain doomsday is something that cannot be prepped for.
So... it certainly isn't perfect.... and there will always be times it doesn't work... but the runup in the 80s seems to match the runup in the prices of ... everything. Compare gold prices with CPI. (Queue CPI naysayers in 10 seconds.) Now gold seems to lag CPI a bit on the uptick... and it leads it a bit on the down tick... but it follows along pretty good.
CPI vs gold (http://www.macrotrends.net/1340/gold-vs-the-cpi-historical-chart)
...as for the run up of the price of gold in the past decade or so... it totally breaks there, which is why I don't own any now (and probably wouldn't buy any until the point it becomes reasonable again.) Gold panic became trendy. If you were lucky enough to buy before the goldbugs did and sell in the run up, you may claim your blue ribbon at the front desk.
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I get an error with your link...
and just for posterity - insert snarky joke about CPI and not trusting the government here :D
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I get an error with your link...
and just for posterity - insert snarky joke about CPI and not trusting the government here :D
odd. Still works for me. FWIW: I don't trust the gubmint and I don't think the CPI is overly accurate, but in both cases: it's the best I have and it's what I have to work with. ;)
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Link working here.
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Hmmm, maybe my adblocker? I'll check at the home PC.
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As a PP-investor, I think having gold as a part of your assets is very "mustachian" in the sense that you don't depend on external factors (i.e. global overall prosperity and optimism in the stock market investors) to be able to live off your portfolio.
I like to see my gold move the opposite direction of my stocks most of the time, whether it's up or down, because that means I won't have to sell an undervalued asset or (god forbid !) work more to meet any unforeseen expense. I am totally financially independent (well, in practice, not yet, but that's the idea).
I don't own gold because I fear zombies but precisely because other people have an irrational fear of zombies (but not always) and I can trade with them, selling my overvalued gold to buy their undervalued stocks. And if zombies actually show up, well, that's still okay for me. Isn't that kewl ? 8)
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CPI vs gold (http://www.macrotrends.net/1340/gold-vs-the-cpi-historical-chart)
Cool site!
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Real Estate has always been a terrible investment, unless you use leverage! With 30 year mortgages, locked in at sub 4% I am excited to see how our rentals hold up over the next 30 years.
Really - maybe you are only considering residential real estate and I agree that residential real estate has a fairly limited potential.
But my absolute best investments (besides a business that I sold) are raw land in the path of growth (currently up 400% in 10 years based on an offer I just received) and a tract of timber land I have owned for many years which has not only increased dramatically in value, but has, at times, provided huge timber, oil and gas, and development income. I am also hopeful that the commercial real estate I acquired in the 08 downturn will provide a very strong return.
Some of the world's largest fortunes were built on commercial real estate and I have a friend who made a small fortune by acquiring residential rental property at bottom dollar prices from the RTC after the Savings and Loan Crises in the late 80s.
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Mike Tyson quotes should probably be used more to explain the market.
Sorry to derail the thread, but in the name of the internets, I must explore this.
"I'd like to get a real estate license, maybe sell insurance."
"I'm the biggest fighter in the history of the sport. If you don't believe it, check the cash register."
"Everybody in boxing probably makes out well except for the fighter."
"I'm just looking for some balance in my life."
"I put people in body bags when I'm right."
"Real freedom is having nothing."
"At one point, I thought life was about acquiring things. Life is totally about losing everything."
"You're smart too late and old too soon."
"The act of treachery is an art, but the traitor himself is a piece of shit."
http://en.wikiquote.org/wiki/Mike_Tyson
People abandoning the PP after the gold downturn is absolutely typical. And I would bet there are very few PPers that have sold their equities, after a 30% up year and rebalanced to an asset class down 20+%.
It will be exactly the same for the majority of the 100% stock people. Most will bail at the next downturn. It is so freakin' easy to act foolishly during a bull market (to confuse luck with skill and to over-estimate risk tolerance) but I have seen it time and again, especially after a downturn that lasts for a year or two, these people totally disappear from the boards and there is also a distant lack of people claiming they can beat the market with their stock picks.
More wisdom from Mike Tyson:
"Everybody has a plan until they get punched in the face.'
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Real Estate has always been a terrible investment, unless you use leverage! With 30 year mortgages, locked in at sub 4% I am excited to see how our rentals hold up over the next 30 years.
Some of the world's largest fortunes were built on commercial real estate and I have a friend who made a small fortune by acquiring residential rental property at bottom dollar prices from the RTC after the Savings and Loan Crises in the late 80s.
People make money in commercial real estate by leverage. The trumps of the world have billions in assets and billions in loans. If the asset doubles they make another billion. If the assets decrease in value by 20% most are bankrupt. Based on broad real estate values over the years, real estate tracks inflation. If you have a loan to value of 80%, then a hundred dollar asset has 20% equity or $20. If the asset increases by inflation at 3%, then the asset is worth $103. You made $3 off of $20 for a return on equity of 15%. Not a bad return. If you paid cash for it, then you would have had a 3% return. Not a great return. The big players like to get the project 100% financed. It is up to banks to push back. During the economic down term we had a number of community banks fail, because of undercapitalized commercial loans. I actually saw a guy's financials that showed he was worth $30 million. That is great until you note that he had like $800 million in assets and $770 million in liabilities. All the guys inflate their assets, so he was really underwater by $50million, but if he can keep the creditors at bay while his assets increase 10% then he is sitting pretty. Unfortunately,his assets went down 30% and he was bankrupt and then the bank went bankrupt. You lose a billion you make a billion. You don't make those types of numbers paying cash.
There are one offs where you can significantly beat inflation, but if you could figure how to use leverage then you would be like a trump or Warren Buffett.
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People make money in commercial real estate by leverage. The trumps of the world have billions in assets and billions in loans. If the asset doubles they make another billion. If the assets decrease in value by 20% most are bankrupt. Based on broad real estate values over the years, real estate tracks inflation. If you have a loan to value of 80%, then a hundred dollar asset has 20% equity or $20. If the asset increases by inflation at 3%, then the asset is worth $103. You made $3 off of $20 for a return on equity of 15%. Not a bad return. If you paid cash for it, then you would have had a 3% return. Not a great return. The big players like to get the project 100% financed. It is up to banks to push back. During the economic down term we had a number of community banks fail, because of undercapitalized commercial loans. I actually saw a guy's financials that showed he was worth $30 million. That is great until you note that he had like $800 million in assets and $770 million in liabilities. All the guys inflate their assets, so he was really underwater by $50million, but if he can keep the creditors at bay while his assets increase 10% then he is sitting pretty. Unfortunately,his assets went down 30% and he was bankrupt and then the bank went bankrupt. You lose a billion you make a billion. You don't make those types of numbers paying cash.
There are one offs where you can significantly beat inflation, but if you could figure how to use leverage then you would be like a trump or Warren Buffett.
I agree that leverage is super important in many investments and can significantly increase returns (and risk) in any asset class. But even without leverage, I own commercial real estate that is producing income at a 10% cap rate and has the possibility (because I bought them when there was blood in the streets) of generating a very nice capital gain if I ever sell them. For example, I bought a piece of property for approximately $0.50 per sq ft. and property is now selling very close by for $4.00 a sq. ft.
Also, I own my timber land at a basis of $1000 / acre. I do have some debt (nothing like 80%) but I have developed tracts that have sold for $10,000 - $15,000 an acre. All the while my timber continues to provide steady income as well as increases in value every year.
These are great returns that have very little to do with leverage.
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Rich buy real estate and stocks, poor want gold. Interesting article.
http://www.bloombergview.com/articles/2014-04-22/rich-buy-real-estate-poor-want-gold?cmpid=yhoo
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I vote no. By putting money to work, productivity increases and thus we can all work less. Gold doesn't do any work, it's just the longest-running speculative bubble in human history. It may do better than cash when you hide it under the mattress, but you are still just hiding it under the mattress.
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I own zero gold and have no plans to every one it. That being said, and investment in gold would have been just about the only productive investment you could have made in the 70s. Stocks lost money to inflation. Bonds lost money to inflation. Real estate was just about break even. And Gold was up like 15%. Of course the the 20 years on either side of have about 0 real return for gold.
The question is would gold help us the next time around (maybe it was going off the gold standard more than inflation) or do we have better tools (how will TIPs and the like work) to handle it. I vote for the latter.
If you research something like the permanent portfolio (25% in cash, long term bonds, stocks and gold) you see some incredible performance from 1972 on where you are earning 3%+ with 3 losing years (the biggest being 4%. You would have been down .7% in 2008). But most of those gains have been done in an an environment were long term bonds performed as well as stocks (long term bonds actually outperformed stocks between 81 and 2011). It seems likely that the 30 year trend of falling interest rates has hit the limit and going forward your long term bond results are more likely to be ~4% instead of 11%.
I vote no. By putting money to work, productivity increases and thus we can all work less. Gold doesn't do any work, it's just the longest-running speculative bubble in human history. It may do better than cash when you hide it under the mattress, but you are still just hiding it under the mattress.
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gold would have been just about the only productive investment you could have made in the 70s
Oh. What did gold produce in the 70s? Inquiring chemists want to know :-p
Just because someone buys it from you for more than you bought it for, doesn't mean your investment was productive; only that it was profitable. Dutch tulips were profitable for some; so were pyramid schemes. But if the only reason the price goes up is because everyone wants to buy in, and the only reason everyone wants to buy in is because the price goes up, that's not a productive investment, it's circular logic.
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gold would have been just about the only productive investment you could have made in the 70s
Oh. What did gold produce in the 70s? Inquiring chemists want to know :-p
Scarcity relative to demand.
Rich buy real estate and stocks, poor want gold. Interesting article.
http://www.bloombergview.com/articles/2014-04-22/rich-buy-real-estate-poor-want-gold?cmpid=yhoo
Informally, looking at the chart in that article, I have produced the following analysis: Newsflash! People think the best "long term investment" is the investment that is currently doing well.
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Informally, looking at the chart in that article, I have produced the following analysis: Newsflash! People think the best "long term investment" is the investment that is currently doing well.
I noticed the same thing and was absolutely shocked. ;)
OTOH, the rich/poor divide was so stark as to be significant regardless of that.
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Informally, looking at the chart in that article, I have produced the following analysis: Newsflash! People think the best "long term investment" is the investment that is currently doing well.
I noticed the same thing and was absolutely shocked. ;)
OTOH, the rich/poor divide was so stark as to be significant regardless of that.
I'd be more interested if they divided it by wealth, not income. I know a LOT of upper middle class doctors and lawyers with large incomes that consistently make terrible investing decisions (like "investing" in their own giant home)
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Oh. What did gold produce in the 70s? Inquiring chemists want to know :-p
Scarcity relative to demand.
That is not what "produce" means. If you make a loan to an agricultural business which uses your money to make efficiency improvements, so that more food is produced by the same work, then your investment increased productivity. If I make a loan to the government so it can build a port which enables more trade, so that it collects more tax revenue, then my investment increased productivity. Gold doesn't enable more production - not if you don't use it to produce electronics or jewellery, at least.
Scarcity is not something you "produce" - at least, not by simply having the thing which is scarce. Normally, it's not even something that benefits society, so even if you do want to define it as "productive", it's not the kind of productivity that you should be happy about your investments achieving.
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That is not what "produce" means. If you make a loan to an agricultural business which uses your money to make efficiency improvements, so that more food is produced by the same work, then your investment increased productivity. If I make a loan to the government so it can build a port which enables more trade, so that it collects more tax revenue, then my investment increased productivity. Gold doesn't enable more production - not if you don't use it to produce electronics or jewellery, at least.
Do you invest in large financial companies like Goldman Sachs or AIG? What do they produce (other than profits)?
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That is not what "produce" means. If you make a loan to an agricultural business which uses your money to make efficiency improvements, so that more food is produced by the same work, then your investment increased productivity. If I make a loan to the government so it can build a port which enables more trade, so that it collects more tax revenue, then my investment increased productivity. Gold doesn't enable more production - not if you don't use it to produce electronics or jewellery, at least.
Do you invest in large financial companies like Goldman Sachs or AIG? What do they produce (other than profits)?
They produce a service. Namely investment banking.
*edit*
What does that question have to do with whether gold produces anything or not?
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That is not what "produce" means. If you make a loan to an agricultural business which uses your money to make efficiency improvements, so that more food is produced by the same work, then your investment increased productivity. If I make a loan to the government so it can build a port which enables more trade, so that it collects more tax revenue, then my investment increased productivity. Gold doesn't enable more production - not if you don't use it to produce electronics or jewellery, at least.
Do you invest in large financial companies like Goldman Sachs or AIG? What do they produce (other than profits)?
Actually, I don't. But they make investments, most of which are productive.
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What does that question have to do with whether gold produces anything or not?
Just pointing out that not all companies produce a tangible product but that doesn't make them without value. Gold also provides a service for my portfolio. ; )
I have no issue with those who don't like gold as an investment, regardless of the reason. Good for you for knowing why you invest in what you do. I can only say that gold has been a productive asset in my own portfolio. It's important to talk about any investment not in isolation but in terms of how it supports your larger strategy.
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I can only say that gold has been a productive asset in my own portfolio.
Profitable. You mean it has been a profitable asset in your own portfolio. They are two different words, they do not mean the same thing.
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I can only say that gold has been a productive asset in my own portfolio.
Profitable. You mean it has been a profitable asset in your own portfolio. They are two different words, they do not mean the same thing.
I'm not really sure what your point is. Gold produces gravitational pull, affecting the entire universe around it. That, plus profit, is good enough for me.
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My point is literally the first thing I said after "I vote no".
By putting money to work, productivity increases and thus we can all work less.
Putting your money in gold doesn't decrease the amount of work required to sustain anybody's lifestyle.
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My point is literally the first thing I said after "I vote no".
By putting money to work, productivity increases and thus we can all work less.
Putting your money in gold doesn't decrease the amount of work required to sustain anybody's lifestyle.
It decreases the amount of work required to sustain MY lifestyle, so...
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No, none of anybody's needs or wants can be satisfied with less work as a result, it just means less of it will be done by you.
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No, it just decreases the amount of work that has to be done by you.
Yes, that's my goal. Do you plan to ER? Because if you quit working, you'll be increasing the amount of work others have to do.
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Yes, that's my goal. Do you plan to ER? Because if you quit working, you'll be increasing the amount of work others have to do.
You really can't tell the difference between less work for everyone, and less work for you at the expense of other people?
Or do you just not believe that there are investments which reduce the total amount of work required to satisfy human needs and wants? Early retirement is possible because of that reduction in the total amount of work required.
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No, it just decreases the amount of work that has to be done by you.
Yes, that's my goal. Do you plan to ER? Because if you quit working, you'll be increasing the amount of work others have to do.
I'm not sure that's true...
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In an economic sense (not a fancy, jewelry sense) ... gold *is* money. It's just an international currency that is not endorsed by a specific government. It's a shiny place that stores value. If things that store value must have some "productive value" ... then I'd suggest you dump all those dollars right out of your wallet and throw them straight away.
Now: speculators have driven it up as an "investment" ... that's a different thing entirely. And the fact that it's seemingly overvalued in respect to other currencies makes me want to avoid it in the short term. That's like speculators driving up Bitcoin or some other foreign currency. But they're all "money."
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In an economic sense (not a fancy, jewelry sense) ... gold *is* money. It's just an international currency that is not endorsed by a specific government. It's a shiny place that stores value. If things that store value must have some "productive value" ... then I'd suggest you dump all those dollars right out of your wallet and throw them straight away.
Now: speculators have driven it up as an "investment" ... that's a different thing entirely. And the fact that it's seemingly overvalued in respect to other currencies makes me want to avoid it in the short term. That's like speculators driving up Bitcoin or some other foreign currency. But they're all "money."
I agree with all of this. It's not a very practical kind of money*, but it's money. Holding money isn't investment; bought-and-held gold is practically "under the mattress".
I don't think everything that stores value should be productive, but I do think productive investments are more Mustachian than non-productive "investments", because they lower the bar for future retirees.
*Nor a very safe one. Unlike US dollars, gold is only backed (to a small extent) by the jewellery and electronics industries!
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In an economic sense (not a fancy, jewelry sense) ... gold *is* money. It's just an international currency that is not endorsed by a specific government. It's a shiny place that stores value. If things that store value must have some "productive value" ... then I'd suggest you dump all those dollars right out of your wallet and throw them straight away.
Now: speculators have driven it up as an "investment" ... that's a different thing entirely. And the fact that it's seemingly overvalued in respect to other currencies makes me want to avoid it in the short term. That's like speculators driving up Bitcoin or some other foreign currency. But they're all "money."
I agree with all of this. It's not a very practical kind of money*, but it's money. Holding money isn't investment; bought-and-held gold is practically "under the mattress".
I don't think everything that stores value should be productive, but I do think productive investments are more Mustachian than non-productive "investments", because they lower the bar for future retirees.
*Nor a very safe one. Unlike US dollars, gold is only backed (to a small extent) by the jewellery and electronics industries!
I pretty much agree here.... though I don't really have any ethical imperative for making things better for future retirees. (No offense meant... Just not really my value system. I'm cool if that's how you want to handle yours.)
I do think you'll always find someone to trade it with... though surely not at a the value of a bubble price. If there is a world crash, it will be worth *something* ... though I'd rather have some non-spoilable food or a big tank of fuel.* But in the same sense, if there was a world crash of enormous proportion, I don't think dollars would be worth much either.
*I'm not a prepper or a world-is-going-to-end nut. This is a wild illustration. I think those doomsday scenarios are things that cannot really be prepared for and thus should just be ignored.
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Yes, that's my goal. Do you plan to ER? Because if you quit working, you'll be increasing the amount of work others have to do.
You really can't tell the difference between less work for everyone, and less work for you at the expense of other people?
Or do you just not believe that there are investments which reduce the total amount of work required to satisfy human needs and wants? Early retirement is possible because of that reduction in the total amount of work required.
I'm sure there are some investments which reduce the total amount of work required to satisfy humans. I do not think I have the amount of money required to offset the loss of my work. In purely economic terms, if I work until I'm 65 I will produce millions and millions of economic benefit. My ER investment of under $1 million will not create enough efficiencies in the world to offset that. Instead, it will probably employ a couple burger flippers, or possibly pay a quarter of an engineer's salary. That engineer may be working to make the world more efficient, or might be working for Facebook or an Ad agency helping increase the sum total of human needs and wants. I have no guarantee that my "productive" money will be beneficial to society (edit: here meaning "reducing the amount of work required to meet society's desires") unless I stop indexing and focus my investment on particular beneficial activities.
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No, it just decreases the amount of work that has to be done by you.
Yes, that's my goal. Do you plan to ER? Because if you quit working, you'll be increasing the amount of work others have to do.
I'm not sure that's true...
So when you quit teaching, you think they will just tell a few kids to go home? No, someone has to do the work you were previously doing unless your departure somehow reduces demand?
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I pretty much agree here.... though I don't really have any ethical imperative for making things better for future retirees. (No offense meant... Just not really my value system. I'm cool if that's how you want to handle yours.)
Sure. Not everyone sees environmentalism as an ethical imperative, but that's also a part of the Mustachian philosophy (e.g. Curing your Clown-Like Car Habit (http://www.mrmoneymustache.com/2013/04/22/curing-your-clown-like-car-habit/):)
And you’re not just wasting your own money, of course. You are wasting the gasoline that the rest of the world works so hard to produce, puncturing seabeds and spilling stadium-loads of oil into pristine wilderness areas as a necessary byproduct. Destroying coral reefs and flooding coastlines with your carbon emissions. Clogging roads and creating demand for roadway expansion, indirectly raising your own taxes. It’s a whole lot of badness we’re doing, every time we drive. It’s not just a matter of “Hey, it’ll only cost me ten bucks for the gas”. It’s a matter of choosing to be an asshole.
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I pretty much agree here.... though I don't really have any ethical imperative for making things better for future retirees. (No offense meant... Just not really my value system. I'm cool if that's how you want to handle yours.)
Sure. Not everyone sees environmentalism as an ethical imperative, but that's also a part of the Mustachian philosophy (e.g. Curing your Clown-Like Car Habit (http://www.mrmoneymustache.com/2013/04/22/curing-your-clown-like-car-habit/):)
And you’re not just wasting your own money, of course. You are wasting the gasoline that the rest of the world works so hard to produce, puncturing seabeds and spilling stadium-loads of oil into pristine wilderness areas as a necessary byproduct. Destroying coral reefs and flooding coastlines with your carbon emissions. Clogging roads and creating demand for roadway expansion, indirectly raising your own taxes. It’s a whole lot of badness we’re doing, every time we drive. It’s not just a matter of “Hey, it’ll only cost me ten bucks for the gas”. It’s a matter of choosing to be an asshole.
I just don't get you, man. You want me to sell my gold, that's just sitting there not hurting anybody, and invest my money into "producing" things, which basically means digging more stuff out of the ground, shipping it around, polluting the environment to transform it into something else, and deliver it to satisfy human wants and needs? Or do you only invest in R&D companies that work on making the world efficient?
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All I know is that every ad for gold I've ever seen is on National Review, or Parade magazine, or Fox News. And looking at the demographics of Fox's viewers, if I were into gold, I'd be very concerned about it in 10-20 years.
In a similar vein, I wonder about all the ammo that old white people have bought up over the last decade or so. What is going to happen to all that stuff when those people die? Is there a way to short ammunition? :)
-W
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it seems to me gold is not well understood, in this forum or most anywhere else
i own a "ton" (not literally unfortunately) of it in different forms, and am absolutely confident it is not in a "bubble" (more below) - it's a big part of my portfolio relative to most others (common references for diversified portfolios would be up to 5% allocation to precious metals ideas)
i consider gold a store of value and a currency (which it has been for literally thousands and thousands of years) - but its a currency that no one controls which is what's important - a keystroke can't create any more of it and the global market sets the price
as far as speculators running up the price as an "investment", raise your hand if you own any? do any of your friends own any? at least in my corner of the universe, it's acceptance in ownership is less than 5% of people i know. if it's in a bubble, then why don't more people have some?
i might suggest it's nowhere close to a bubble, and when it is you will know - and those of us who have followed it and studied it and understand why we own it will likely be the ones selling it
i for one wouldn't sell a single coin right now, and most of that other 5% i know wouldn't either - the majority of "sellers" are the ones who don't have any in the first place
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I just don't get you, man. You want me to sell my gold, that's just sitting there not hurting anybody, and invest my money into "producing" things, which basically means digging more stuff out of the ground, shipping it around, polluting the environment to transform it into something else, and deliver it to satisfy human wants and needs? Or do you only invest in R&D companies that work on making the world efficient?
I haven't said anything about what I want. I also didn't say anything about what I invest in (other than that I don't invest in Goldman Sachs or AIG). The thread is about Mustachianism, not about me.
You're conflating productivity with environmental destruction. There are many things that can be produced without net harm to the Earth - for example, bicycles and wind turbines, or software and music.
The vast majority of successful companies work to make the world more efficient. That's the effect of having to compete with other companies who are making similar products or providing similar services: if you're more efficient than your competitor, you make more of a profit, and you can still make a profit if you have to reduce your prices.
i own a "ton" (not literally unfortunately) of it in different forms, and am absolutely confident it is not in a "bubble" (more below)
I don't mean a temporary bubble, I mean a millenia-long, ingrained-in-most-human-cultures bubble. A speculative bubble is what happens when the price only goes up because people are buying, and people are buying only because the price goes up. As in, people only think gold is valuable because they think other people think gold is valuable. I'm not talking about a prediction within the timescale of our lifetimes, but eventually people are going to look back (maybe with advanced time-viewing devices from the 50th century!) and think "what ridiculous circular logic! why did so many people fall for it?" just like we look back on dutch tulips.
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No, it just decreases the amount of work that has to be done by you.
Yes, that's my goal. Do you plan to ER? Because if you quit working, you'll be increasing the amount of work others have to do.
I'm not sure that's true...
So when you quit teaching, you think they will just tell a few kids to go home? No, someone has to do the work you were previously doing unless your departure somehow reduces demand?
One example doesn't make a universal true, unless you were speaking directly to me, and are saying it was only applicable to me.
Your blanket statement of "Do you plan to ER? Because if you quit working, you'll be increasing the amount of work others have to do." I don't think is universally true for all jobs.
1) Some jobs have are mostly busy work. That doesn't necessarily have to be (though it often might be) taken up by someone else.
2) Jobs become redundant (downsized, taken over by a machine, etc.) all the time. People stopping those jobs don't create work for someone else.
3) You could be creating the demand for your services, so you stopping it doesn't mean someone has to fill that void.
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No, it just decreases the amount of work that has to be done by you.
Yes, that's my goal. Do you plan to ER? Because if you quit working, you'll be increasing the amount of work others have to do.
I'm not sure that's true...
So when you quit teaching, you think they will just tell a few kids to go home? No, someone has to do the work you were previously doing unless your departure somehow reduces demand?
One example doesn't make a universal true, unless you were speaking directly to me, and are saying it was only applicable to me.
Your blanket statement of "Do you plan to ER? Because if you quit working, you'll be increasing the amount of work others have to do." I don't think is universally true for all jobs.
1) Some jobs have are mostly busy work. That doesn't necessarily have to be (though it often might be) taken up by someone else.
2) Jobs become redundant (downsized, taken over by a machine, etc.) all the time. People stopping those jobs don't create work for someone else.
3) You could be creating the demand for your services, so you stopping it doesn't mean someone has to fill that void.
Yes, there are edge cases, but the vast majority of us retiring are going to leave work left undone.
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Irrelevant, I am talking about the total amount of work which needs to be done, not whether you're doing it or not. Retiring doesn't increase that total, but productive investments can decrease it.
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What does that question have to do with whether gold produces anything or not?
Just pointing out that not all companies produce a tangible product but that doesn't make them without value. Gold also provides a service for my portfolio. ; )
I have no issue with those who don't like gold as an investment, regardless of the reason. Good for you for knowing why you invest in what you do. I can only say that gold has been a productive asset in my own portfolio. It's important to talk about any investment not in isolation but in terms of how it supports your larger strategy.
Cool but we're talking about companies and gold right? You're trying to equate the two by saying well they both provide service in a very roundabout way. No offense but winking about it doesn't make it so. Buying a block of gold provides no service. In fact the service provided is only in the perception much like the tulips wf2 has mentioned. Gold under your mattress provides nothing the perception of the value is the only thing that actually provides value. Money invested in Goldman Sachs means you own a piece of the capital and are entitled to a proportionate share of the profits. Those are two very very different things.
I'm not saying gold can't work in a portfolio, I may feel that but that isn't what I said in my original comment. You were likening gold to a company. And you can't just compare the two like that. It's not an apples to apples because you can put money into it. It's more like apples to crap IMO but if you want to stick to the idiom oranges then.
I've painted my bias allover this thread before so I'm sure the rest of this just highlights it.
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Yes, there are edge cases, but the vast majority of us retiring are going to leave work left undone.
Perhaps, though I wouldn't call everything I named merely an "edge case" - automation, for example, replacing jobs is quite frequent.
I also think there's a net gain in reduction of work done by someone becoming Mustachian - i.e. even by FIREing, their reduced consumption overall means less overall work is done - your particular work may shift to someone else, but your reduced consumption more than makes up for that.
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Yes, there are edge cases, but the vast majority of us retiring are going to leave work left undone.
Perhaps, though I wouldn't call everything I named merely an "edge case" - automation, for example, replacing jobs is quite frequent.
I also think there's a net gain in reduction of work done by someone becoming Mustachian - i.e. even by FIREing, their reduced consumption overall means less overall work is done - your particular work may shift to someone else, but your reduced consumption more than makes up for that.
Yes automation happens, but I don't know anyone here waiting for the automation to come before quitting. I guess some are hoping to engineer their layoffs?. Also, I don't think most of us are planning to decrease our consumption in FIRE (you for example are planning to increase).
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The deal with gold is that it does store value...
The problem with gold is that it does it poorly...
I.e. a troy ounce of gold right now is give or take 1300 which in Chicago area is
2 months in crummy apartment or 1 month of rent in good neighborhood with more than one bedroom , or
3-4 months of food for family of three like ours , or
a roundtrip across an ocean ,or (for ammo/guns inclined among the audience)
a full rifle from reputable maker and 500 rounds of ammunition or multiple hanguns.
if anyone thinks they can get any of above 'when things turn bad' for a coin which is nothing more than a piece of metal they are wildly optimistic.
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The deal with gold is that it does store value...
The problem with gold is that it does it poorly...
I.e. a troy ounce of gold right now is give or take 1300 which in Chicago area is
2 months in crummy apartment or 1 month of rent in good neighborhood with more than one bedroom , or
3-4 months of food for family of three like ours , or
a roundtrip across an ocean ,or (for ammo/guns inclined among the audience)
a full rifle from reputable maker and 500 rounds of ammunition or multiple hanguns.
if anyone thinks they can get any of above 'when things turn bad' for a coin which is nothing more than a piece of metal they are wildly optimistic.
So what would the medium of exchange be? Your first daughter maybe? or a year as an indentured serf?
You talk as if you know what the future medium of exchange will be, so spill.
You an I both know that we have no idea what the monetary environment will look like in the future.
What we do have is history to guide us.
So you and I may hold shares of X company or index
Or a piece of productive real estate.
You can also own gold.
Remember, each asset has its place and time in the sun.
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Remember, each asset has its place and time in the sun.
The first half of your post says not all assets are equally good. This line seems to say that they aren't. So which is it? Is your first daughter an asset whose time in the sun is not yet come?
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How much for that daughter?
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if anyone thinks they can get any of above 'when things turn bad' for a coin which is nothing more than a piece of metal they are wildly optimistic.
the entirety of human history indicates that it will be easier to get those things with my barbarous relic coins than it will be with paper dollars or internet "coins"
but that result (complete meltdown of all society) is a pretty far fetched tail event, and it's not the reason i've invested in PMs (and not a reason most people that I know have, either)
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It produced ~1100 dollars per ounce.:) Productive have a lot of definitions. You are focused on one and ignoring the rest.
gold would have been just about the only productive investment you could have made in the 70s
Oh. What did gold produce in the 70s? Inquiring chemists want to know :-p
Just because someone buys it from you for more than you bought it for, doesn't mean your investment was productive; only that it was profitable. Dutch tulips were profitable for some; so were pyramid schemes. But if the only reason the price goes up is because everyone wants to buy in, and the only reason everyone wants to buy in is because the price goes up, that's not a productive investment, it's circular logic.
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It produced ~1100 dollars per ounce.:) Productive have a lot of definitions. You are focused on one and ignoring the rest.
No, for the point I was making, it was clear what I meant by "productive". What followed was an argument sort of like "a drum is not a stringed instrument", "but my drum has a piece of string holding it tight", &c. You can't just swap out a word from an argument with another meaning for the same word, and expect to have a sensible counter-argument, that is the logical fallacy of equivocation (https://en.wikipedia.org/wiki/Equivocation#Fallacious_reasoning).
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It produced ~1100 dollars per ounce.:) Productive have a lot of definitions. You are focused on one and ignoring the rest.
No, for the point I was making, it was clear what I meant by "productive". What followed was an argument sort of like "a drum is not a stringed instrument", "but my drum has a piece of string holding it tight", &c. You can't just swap out a word from an argument with another meaning for the same word, and expect to have a sensible counter-argument, that is the logical fallacy of equivocation (https://en.wikipedia.org/wiki/Equivocation#Fallacious_reasoning).
You are right, the response should have been: It doesn't matter if an asset is "productive" as long as it serves your investment goals.
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You are right, the response should have been: It doesn't matter if an asset is "productive" as long as it serves your investment goals.
And it doesn't matter if a vehicle is "environmentally friendly" as long as it gets you where you want to go - depending on your philosophy. But concern for the environmental is part of the particular philosophy called Mustachianism, and I would argue that investing productively is Mustachian on the same grounds. It may not be part of your philosophy, that's your call.
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You are right, the response should have been: It doesn't matter if an asset is "productive" as long as it serves your investment goals.
And it doesn't matter if a vehicle is "environmentally friendly" as long as it gets you where you want to go - depending on your philosophy. But concern for the environmental is part of the particular philosophy called Mustachianism, and I would argue that investing productively is Mustachian on the same grounds. It may not be part of your philosophy, that's your call.
You seem to be conflating productivity with concern for the environment.
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And it doesn't matter if a vehicle is "environmentally friendly" as long as it gets you where you want to go - depending on your philosophy. But concern for the environmental is part of the particular philosophy called Mustachianism, and I would argue that investing productively is Mustachian on the same grounds. It may not be part of your philosophy, that's your call.
You seem to be conflating productivity with concern for the environment.
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No. I'm arguing that the same reasoning (it improves the world for everyone else) applies to both. How wasn't that clear?
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And it doesn't matter if a vehicle is "environmentally friendly" as long as it gets you where you want to go - depending on your philosophy. But concern for the environmental is part of the particular philosophy called Mustachianism, and I would argue that investing productively is Mustachian on the same grounds. It may not be part of your philosophy, that's your call.
You seem to be conflating productivity with concern for the environment.
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No. I'm arguing that the same reasoning (it improves the world for everyone else) applies to both. How wasn't that clear?
Because "the same grounds" refers back to "concern for the environmental." Otherwise you are arguing that investing productively is Mustachian because it "is part of the particular philosophy called Mustachianism," which is just circular reasoning.
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"The same grounds" meaning "the grounds on which environmentalism is favoured". For the same reasons. I.e., it improves the world for everyone else. The Mustachian reasoning in favour of environmentalism is not "because it is Mustachian".
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More correlation than causation, but interesting nonetheless:
http://www.bloombergview.com/articles/2014-04-22/rich-buy-real-estate-poor-want-gold
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"The same grounds" meaning "the grounds on which environmentalism is favoured". For the same reasons. I.e., it improves the world for everyone else. The Mustachian reasoning in favour of environmentalism is not "because it is Mustachian".
I don't agree that "productive" assets inherently improve the world by virtue of their "productivity." I also don't agree that environmentalism inherently improves the world (there are a lot of misguided recycling programs). How do you feel about gold miners?
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Re: Is Gold Anti-Mustachian?
Nope… Ask my Stache..
But I would not but it at todays prices.
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Adrian,
Not sure why such aggressive response - if you want gold, buy gold. Just be aware of it not being great storage of value and that is what my post was about.
As for the new question on the good medium of exchange - it is whatever your community will accept and want, and is highly situational. i.e. back in early nineties during civil war in my country, the water heaters (spiral and a plug basically to boil water anywhere there was electricity) were great medium of exchange - the water was dirty and dangerous to drink, having drinking water was good. One water heater plug in thingy easily traded for AK. Gold at that point was absolutely useless and instead was an invitation to get killed or kidnapped. for my friends a little more south from where we were , their food plant was destroyed by fighting and all they had was cheese wheels - those and cheese became medium of exchange, people learned to cook bred out of cheese wheels (don't ask me how as I have no idea)
There is one scenario where gold/precious metals and items truly shine - if you have to bolt and leave the country. I remember a podcast interview with a son of a Vietnamese immigrants who left when south Vietnam lost the war and what this person said was basically "we were wealthy, had plantations, had business in Saigon, had connections and "friends", had armory worth of guns plus people to protect us and ours, but when Communists came none of that mattered. plantations were no longer really ours, businesses were chattered, friends or people we paid to died or flee the country, and we knew too well that few dozen family with AR rifles stand no change against armored divisions. so we took what family kept in gold, paid/bribed to get out and used the remainder to start businesses in the new country including a set of laundromats". I agree with the guy who spoke, this is where small ,portable, untraceable, asset like gold matters. in other cases you are better off owning means of production (of food, of energy, or security, etc) vs a chunk of metal
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I don't agree that "productive" assets inherently improve the world by virtue of their "productivity." I also don't agree that environmentalism inherently improves the world (there are a lot of misguided recycling programs). How do you feel about gold miners?
So it's not part of your philosophy. But it's part of Mustachianism*. The thread is not called "Is Gold Anti-Dragoncarian?".
*Or at least, that's what I'm arguing.
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I don't agree that "productive" assets inherently improve the world by virtue of their "productivity." I also don't agree that environmentalism inherently improves the world (there are a lot of misguided recycling programs). How do you feel about gold miners?
So it's not part of your philosophy. But it's part of Mustachianism*. The thread is not called "Is Gold Anti-Dragoncarian?".
*Or at least, that's what I'm arguing.
I would disagree, and argue the opposite - you're saying it's anti WF2.
It's not anti-Mustachian.
Sure, maybe you could argue it's less optimal that an asset that produces things and makes life better for people, but it's not necessarily making life worse, or harming people (any more than, you know, anything else, such as the mining to get metal to make a bicycle).
If I was making a list of core Mustachian tenants, I wouldn't include "invest only in productive assets" as one of them.
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I would disagree, and argue the opposite - you're saying it's anti WF2.
But I'm arguing with reference to Mustachian principles. For example, that life is great because increases in productivity permanently reduce our workloads; and that we should improve the world for everyone.
If I was making a list of core Mustachian tenants, I wouldn't include "invest only in productive assets" as one of them.
(I assume tenants is a Freudian slip for "tenets" because you invest in so much real estate. :-p)
The principles I appeal to may not be "core" principles, but they are found within our sacred texts:
How to Make Money in the Stock Market (http://www.mrmoneymustache.com/2011/05/18/how-to-make-money-in-the-stock-market/):
And all this happens because of the natural ingenuity of hardworking humans making things at a profit, and continuing to advance our knowledge and technology and make us all more productive in every field
Why We are Not Really All Doomed (http://www.mrmoneymustache.com/2014/03/03/why-we-are-not-really-all-doomed/):
As recently as my own childhood, nailguns were incredibly rare and expensive, and much bulkier – used only by large construction companies. Nails were driven with hammers, because nobody could afford the gun. Today, I personally own five different sizes of nailguns, because the boost in productivity and work quality greatly outweighs the cost or the loss of manliness caused by the automatic driving of fasteners. In turn, I am using the time saved by these nailguns to write this article for you.
[...]
The crazier ones turn to gold and silver [sorry, couldn't resist including this bit!]
[...]
Invest your money in index funds and real estate rather than “protecting” it while trying to predict the next collapse. You’ll still own your piece of land or your slice of thousands of businesses regardless of what the guy on the fence is yelling about what he would pay for it at the moment.
Curing your Clown-Like Car Habit (http://www.mrmoneymustache.com/2013/04/22/curing-your-clown-like-car-habit/):
And you’re not just wasting your own money, of course. You are wasting the gasoline that the rest of the world works so hard to produce, puncturing seabeds and spilling stadium-loads of oil into pristine wilderness areas as a necessary byproduct. Destroying coral reefs and flooding coastlines with your carbon emissions. Clogging roads and creating demand for roadway expansion
Electric Cars: Are they For Real? (http://www.mrmoneymustache.com/2012/09/13/electric-cars-are-they-for-real/):
The real benefit, however, comes in areas like mine where non-coal power is available. Here in Colorado, wind power is cheap and plentiful, and when you buy more of it, they just put up more towers in the otherwise-barren Eastern desert plains of the state. The impact on jobs is spectacular, as I keep seeing shiny new wind company headquarters popping up, and meeting highly-paid engineers and technicians who have come to the state to work in the growing industry. All caused by me just checking a box on my power bill that said “100% wind”.
And then there's this lovely article (http://www.mrmoneymustache.com/2012/08/22/how_to_sell_silver/) on how to sell any physical gold and silver that you might happen to have, which suggests sentiment as the only reason to keep it, and makes the case against buying, on environmental grounds:
If you’ve got silver or gold in your family, and are not sentimentally attached to it, you should seriously consider selling that shit!
[...]
And it’s even environmentally friendly to cash this stuff in. Today’s sky-high precious metals prices have caused a mining boom (just ask any Australian). When you sell into the market, you are increasing supply, which tends to decrease the market price and decrease the profitability of mining operations. So less mining happens, if you decide not to hoard silver and gold.
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(I assume tenants is a Freudian slip for "tenets" because you invest in so much real estate. :-p)
Hah, yes. I almost always do that when typing tenets, I just usually catch it first.
The principles I appeal to may not be "core" principles, but they are found within our sacred texts
That's fine, but there's plenty of stuff MMM does that doesn't necessarily make it a core tenet. For example, he owns a rental. I could link to 5 or 6 articles referencing it. That doesn't mean owning a rental is a core principal of Mustachianism.
One could argue that gold isn't useful, and that it's more Mustachian to invest in productive assets, but it's also more Mustachian to ride a bike, that doesn't mean all cars need to be burned. It's more Mustachian to eat at home, but eating out sometimes is fine too.
Mustachianism is a scale, and while less gold and more productive assets may be higher on the scale (like biking more and eating at home), owning some isn't "anti-Mustachian," IMO.
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While this obviously isn't binary, I continue to think gold is pretty plainly anti-mustachian.
1) It derives it's value primarily from a pessimistic worldview. I mean, when bribing border guards is one of the best uses we can think of, we're talking about a seriously pessimistic asset class. Take a look at any gold-bug's thinking and a high valuation for gold almost always goes hand-in-hand with doomsday scenarios, government conspiracy theories, and general fear mongering. It may be OK to hold a small amount of physical gold as a "currrency of last resort", especially if you happen to be an unprotected class of person in a politically unstable country, but the average 1st world westerner would probably do better to spend their money and brain power on things like healthy eating and making sure you don't get hit by a car when you cross the street than stockpiling gold and reading zerohedge.com.
2) Its a tenet of mustachianism that we get rich through compounded returns on invested assets. Gold has no real return (it will only track inflation over the long haul) so it's a poor way to reach FIRE. As a 5-10% portfolio holding, gold is fine for diversity and a inflation hedge. But a 50% allocation to gold means you're likely going to working for "the man" a whole lot longer.
3) It's hugely environmentally destructive while having only minor useful application. Unlike iron mining which provides the raw material for bikes and nail guns, gold pretty much just sits in a safe (minor applications for products like electronics aside). The world would be better off if we all decided that gold was no longer a store of value and chose something similarly arbitrary instead (perhaps Frank Thomas rookie cards or something).
We can split hairs on any of these individual items, but the overall picture strikes me as pretty anti-mustachian.
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1) It derives it's value primarily from a pessimistic worldview. I mean, when bribing border guards is one of the best uses we can think of, we're talking about a seriously pessimistic asset class.
That's right. The thing is, you do not choose what the markets favor at a given moment and you don't choose what the world becomes (and, by extension, whether the markets were right or wrong). The only thing you can do (regarding assets) is either buy/hold/sell it at a given moment, and the winner's deal is to buy what the market disregards and sell what it begs for. You think there are too many pessimistic investors looking for gold at any price ? You think gold is too expensive and people are crazy to buy at that price ? Fine ! You may be right. Then the only good thing you can do is to massively sell gold right now.
How can *that* be anti-mustachian ?
Another way to say it : I don't own a car because I think owning / driving cars is not necessary to my lifestyle and not very mustachian. Does that mean
investing in automobile manufacturers stocks is antimustachian ? Should I disregard luxury goods companies because I despise luxury goods as a consumer ?
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Just because one is a satisfied owner of an optimism gun does not mean that it is wise to invest one's life savings in Optimism, Inc.
In any case, arguing about specific asset classes and how "kosher" they are to a philosophy fundamentally much larger than investing strikes me as similar to Baptists and Methodists bickering over proper baptism technique. You're missing the big picture, and you're fundamentally on the same team.
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Just because one is a satisfied owner of an optimism gun does not mean that it is wise to invest one's life savings in Optimism, Inc.
In any case, arguing about specific asset classes and how "kosher" they are to a philosophy fundamentally much larger than investing strikes me as similar to Baptists and Methodists bickering over proper baptism technique. You're missing the big picture, and you're fundamentally on the same team.
(http://i.kinja-img.com/gawker-media/image/upload/s--HlFdaqjM--/c_fit,fl_progressive,q_80,w_320/pftttj5sskpx9c1ej08z.gif)
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1) It derives it's value primarily from a pessimistic worldview. I mean, when bribing border guards is one of the best uses we can think of, we're talking about a seriously pessimistic asset class.
That's right. The thing is, you do not choose what the markets favor at a given moment and you don't choose what the world becomes (and, by extension, whether the markets were right or wrong). The only thing you can do (regarding assets) is either buy/hold/sell it at a given moment, and the winner's deal is to buy what the market disregards and sell what it begs for. You think there are too many pessimistic investors looking for gold at any price ? You think gold is too expensive and people are crazy to buy at that price ? Fine ! You may be right. Then the only good thing you can do is to massively sell gold right now.
How can *that* be anti-mustachian ?
Another way to say it : I don't own a car because I think owning / driving cars is not necessary to my lifestyle and not very mustachian. Does that mean
investing in automobile manufacturers stocks is antimustachian ? Should I disregard luxury goods companies because I despise luxury goods as a consumer ?
Yeesh. This was what I meant by splitting hairs.
1) I never argued that the price of gold is "high". It might my super low. Literally, only time will tell.
2) I never argued that gold isn't a suitable investment for a portion of your portfolio, nor that you should never carry an umbrella because it's anti-mustachian to worry about the weather. At 0-10%, I think it's fine as a diversifier. At 25-50%+, it's quite possible that a pessimistic world view is running rough-shod over a reasonable investment strategy.
3) The ethical stock investing question has been debated in other threads and it probably doesn't make sense to re-open the argument here. I admire anyone who tries to build a diversified stock portfolio around "ethical" companies, however you want to define that. However, I think most on this forum deem this an excessively onerous process and prefer to vote with their consumer dollars, hoping that corporations revise their practices to suit consumer demand for ethical products and services.
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Oh, I wasn't really discussing ethics. I just mean that an asset can have no practical value to your eyes (gold, cars, luxury goods) but be a very good investment anyway. Ethics is another point and, you are true, is not limited to gold mining issues.
I'm not splitting hair, I'm comparing gold's hair to its antinomic neighbor, stock market. Your 3 points could be quite easily applied to stocks, too, and I could conclude that stocks are antimustachian as hell. We discussed point 1 & 3, now let's see point 2 (it's a bit less obvious, I have to admit) :
2) Its a tenet of mustachianism that we get rich through compounded returns on invested assets. Gold has no real return (it will only track inflation over the long haul) so it's a poor way to reach FIRE. As a 5-10% portfolio holding, gold is fine for diversity and a inflation hedge. But a 50% allocation to gold means you're likely going to working for "the man" a whole lot longer.
Stocks have a huge potential real return, but it's *potential*, and they can make you wealthy *or* wipe you out. Sure, the odds are clearly in favor of wealth, but you can lose, too, and you are not given a second chance. And the bad news is that if that happens, you probably will have a hard time finding a job to recover your losses (long-lasting market crashes tend to happen during hard economic times). A reasonable allocation to stocks (and yes, >50% can be reasonable) is fine for taking your share of prosperity and good volatility. But too large a portion makes you at risk of never reaching FIRE, too.
[sidenote]This heavy stock indexing motto, is, I think, the oddest aspect of the MMM community, IMO. It looks a bit like playing the lottery, although the odds are clearly in your favor. I can't feel free while I'm only depending on Mr Market's lunatic opinions. Index investing only makes sense when you diversify a lot, I think (and yes, that's true with gold or bonds too). Or, if you like stocks that much, dividend investing is much less volatile and much more rational. Physical RE investing is good, too. In both cases, you have an asset that produces a rather stable income and you don't depend on a bigger fool as it is with gold or, to a lesser extent, stock indexes.[/sidenote]
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Yes, that's my goal. Do you plan to ER? Because if you quit working, you'll be increasing the amount of work others have to do.
You really can't tell the difference between less work for everyone, and less work for you at the expense of other people?
Or do you just not believe that there are investments which reduce the total amount of work required to satisfy human needs and wants? Early retirement is possible because of that reduction in the total amount of work required.
I'm sure there are some investments which reduce the total amount of work required to satisfy humans. I do not think I have the amount of money required to offset the loss of my work. In purely economic terms, if I work until I'm 65 I will produce millions and millions of economic benefit. My ER investment of under $1 million will not create enough efficiencies in the world to offset that. Instead, it will probably employ a couple burger flippers, or possibly pay a quarter of an engineer's salary. That engineer may be working to make the world more efficient, or might be working for Facebook or an Ad agency helping increase the sum total of human needs and wants. I have no guarantee that my "productive" money will be beneficial to society (edit: here meaning "reducing the amount of work required to meet society's desires") unless I stop indexing and focus my investment on particular beneficial activities.
This entire posts misses the point of ER and what you're actually doing. You are not "replacing your economic value" to the world with your capital, because your economic value is rated at your contribution to the economy, which is understated by your salary. What ER is, funding your future endeavors, with your past actions.
If you want to live as an engineer, creating hundreds of thousands of dollars of economic benefit to the tune of a 100k salary, or the life of a teacher, reaching 30 + people per year, and giving them an untold economic stimulus(the study of a bad teacher being a negative 1.4 million dollar cumulative disadvantage, and a good teacher being able to raise a class by 1.5-2 class years), then more power to you.
The alternative of course, is Mustachianism, valuing your own time, and frugality more than your economic benefit. If it allows you to live a simple life, then more power to you. If you wish to continue providing economic benefit to the world, and charity the rest, then good on you. However, the world is not a beautiful, nice place, and you will never receive the true value of what you give.
1) It derives it's value primarily from a pessimistic worldview. I mean, when bribing border guards is one of the best uses we can think of, we're talking about a seriously pessimistic asset class.
That's right. The thing is, you do not choose what the markets favor at a given moment and you don't choose what the world becomes (and, by extension, whether the markets were right or wrong). The only thing you can do (regarding assets) is either buy/hold/sell it at a given moment, and the winner's deal is to buy what the market disregards and sell what it begs for. You think there are too many pessimistic investors looking for gold at any price ? You think gold is too expensive and people are crazy to buy at that price ? Fine ! You may be right. Then the only good thing you can do is to massively sell gold right now.
How can *that* be anti-mustachian ?
Another way to say it : I don't own a car because I think owning / driving cars is not necessary to my lifestyle and not very mustachian. Does that mean
investing in automobile manufacturers stocks is antimustachian ? Should I disregard luxury goods companies because I despise luxury goods as a consumer ?
The question though, K9, is whether there is -any- inherent value IN gold. If you think there is, then that explains your actions from a rational point of view. For those of us that don't, then our actions are explained rationally. I'd sooner store a water filtration system and dig a well, then invest in gold because my own personal opinion is that the economic apocalypse the proves gold bugs true, is one in which you'd best invest in ammo, solar panels, water, and land and keep the above protected from the rampaging hordes. Seeing as how I am not a hunter or farmer, I know that I'll die in said apocalypse anyways, so any partial attempt at hedging against the ~1% chance or whatever it is of that hell hole of a future isn't worth it to me.
Whatever the market does with gold, for me, I care about it as much as I care about hoarding copper or aluminum... or bitcoins.
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The question though, K9, is whether there is -any- inherent value IN gold. If you think there is, then that explains your actions from a rational point of view. For those of us that don't, then our actions are explained rationally. I'd sooner store a water filtration system and dig a well, then invest in gold because my own personal opinion is that the economic apocalypse the proves gold bugs true, is one in which you'd best invest in ammo, solar panels, water, and land and keep the above protected from the rampaging hordes.
Investing is not that much about inherent value but about market valuation. If the market values a ton of charcoal 0.000001$ on odd days and 1,000,000$ on even days, fine. I don't think it reflects charcoal's inherent value in any way, but I'll be pleased to buy cheap and sell expensive charcoal every two days. I don't really care, actually. And that's the most important thing. You must not fall in love with your investments, since you have to be able to sell them when the bell rings. That has been a major failure of gold bugs in 2013 : they refused to sell gold high and buy some back low because, hey, in gold they trust. But stock bugs face the same issues, on occasions.
Water filtration systems, bug-out bags, forest cabins, ammo and the like are not investments ; they are equipment, and that's a very different matter.
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But there's no way such a pattern could be persistent. Half of all bets placed on gold are wrong, and there's no economic reason it should be more than a crapshoot.
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Investing is not that much about inherent value but about market valuation. If the market values a ton of charcoal 0.000001$ on odd days and 1,000,000$ on even days, fine. I don't think it reflects charcoal's inherent value in any way, but I'll be pleased to buy cheap and sell expensive charcoal every two days. I don't really care, actually. And that's the most important thing. You must not fall in love with your investments, since you have to be able to sell them when the bell rings. That has been a major failure of gold bugs in 2013 : they refused to sell gold high and buy some back low because, hey, in gold they trust. But stock bugs face the same issues, on occasions.
Water filtration systems, bug-out bags, forest cabins, ammo and the like are not investments ; they are equipment, and that's a very different matter.
Stocks have changing fundamentals, secondary IPO's, dividends, and buybacks. Gold continues to just sit there. From day to day, a lump of gold remains a lump of gold. From day to day, Enron declares bankruptcy, and people get irrationally exuberant about Tesla building electric jetplanes.
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Investing is not that much about inherent value but about market valuation. If the market values a ton of charcoal 0.000001$ on odd days and 1,000,000$ on even days, fine. I don't think it reflects charcoal's inherent value in any way, but I'll be pleased to buy cheap and sell expensive charcoal every two days. I don't really care, actually. And that's the most important thing. You must not fall in love with your investments, since you have to be able to sell them when the bell rings. That has been a major failure of gold bugs in 2013 : they refused to sell gold high and buy some back low because, hey, in gold they trust. But stock bugs face the same issues, on occasions.
Water filtration systems, bug-out bags, forest cabins, ammo and the like are not investments ; they are equipment, and that's a very different matter.
Stocks have changing fundamentals, secondary IPO's, dividends, and buybacks. Gold continues to just sit there. From day to day, a lump of gold remains a lump of gold. From day to day, Enron declares bankruptcy, and people get irrationally exuberant about Tesla building electric jetplanes.
Sure stocks have fundamentals. But I think K9's point is that a lot of times the market value isn't tied to that, due to people's speculation. (Gold is a clear example - it should be valued at the cost to raise it out of the ground for its practical uses.)
I don't care to speculate, so I wouldn't "invest" in gold, but plenty do.
But there's no way such a pattern could be persistent. Half of all bets placed on gold are wrong, and there's no economic reason it should be more than a crapshoot.
Absolutely. People would arbitrage the difference away instantly. But I think K9's saying he'd have no problem investing in it and being one of those people arbitraging because he's interested in the market value of his investments, not the intrinsic value or ethical worth.
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But there's no way such a pattern could be persistent. Half of all bets placed on gold are wrong, and there's no economic reason it should be more than a crapshoot.
If you try market timing, you better be competent, that's true for any asset class. But if you set a target allocation of gold as you would do with stocks, RE, bonds, cash, etc. and rebalance accordingly, you mechanically buy low and sell high. The only difficult aspect of automated rebalancing is to actually do it, sell assets when they seem to go higher and higher every day, and buy when they look like a loser's trade. That's what I mean by "not falling in love with your investments". And once again, that's true with stocks too. Sure, on the long run, bought & held stocks will probably provide a very good return, but then you will have missed most opportunities to buy low & sell high.
Stocks have changing fundamentals, secondary IPO's, dividends, and buybacks. Gold continues to just sit there. From day to day, a lump of gold remains a lump of gold. From day to day, Enron declares bankruptcy, and people get irrationally exuberant about Tesla building electric jetplanes.
And that's precisely why it's good to have gold with stocks even if you don't believe in TEOTWAWKI, because guess what panicking investors buy when they rush out of stocks ? Yes, that good ol' fixed lump of gold. I'm glad I have some of that useless metal, because I can exchange a gram of it against tons of stocks. And guess who will buy that useless shiny rock at a discount when everyone wants to buy back some stocks ?
And why don't I panick with the other guys ? Because I'm an optimist and I don't fall in love with my investments.
Edit : hah, arabalspy, you seem to be the one who understands me the best on this forum, it's not the first time I can see it. To all readers : please forgive me for my poor English : I'm French, and we bloody French don't care about the rest of the world's languages because we think we are the best ;)
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Investing is not that much about inherent value but about market valuation.
Not necessarily. Value investing is about getting great inherent value for fair or better market value. You're partially talking about greater fool investing, which I want nothing to do with. You couldn't pay me enough money to invest in Facebook or Tesla today, because I think those stocks are absolutely unsustainable(the business for the next Myspace, the future growth prospects for the next Ford), and I don't want to find a greater fool than myself.
Look, I agree with you that you can call gold an asset, but it's not a productive asset, it does nothing but hedge(and the history of it doing that is actually not that good). It's comparable to cash, and you know what I don't keep much of on hand? Cash, so comparing it to that doesn't do anything for me.
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Story on India and Gold
http://finance.yahoo.com/news/indias-love-affair-gold-may-002341090.html
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Interesting article on gold and the various economic indicators. Actually, the economical data is more interesting. Long, but worth a read.
http://marketrealist.com/2015/02/investing-gold-read-first/?utm_source=yahoo&utm_medium=feed&utm_content=read-prev&utm_campaign=european-easing-sends-gold-soaring
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Great currency, okay speculative item, poor investment.
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I've been doing some research on the Permanent Portfolio (PP) and it makes a pretty strong case for owning gold.
Portfolio CAGR (1974-2011)
PP 9.3%
100% Equity 10.4%
100% Bonds 7.9%
50/50 Equity/Bonds 9.5%
Also, the PP provided a much lower level of volatility. I've been impressed with the PP past performance given it includes a 25% allocation to gold.
I'm a defensive investor by nature and find the PP very attrative. I'd like to pull the plug on FIRE next year and worry about having to return to work in the future if the portfolio tanks. My per hour wage today is the highest it will ever be, so building it back up in the future will be painful at half the salary.
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I've been doing some research on the Permanent Portfolio (PP) and it makes a pretty strong case for owning gold.
Portfolio CAGR (1974-2011)
PP 9.3%
100% Equity 10.4%
100% Bonds 7.9%
50/50 Equity/Bonds 9.5%
Also, the PP provided a much lower level of volatility. I've been impressed with the PP past performance given it includes a 25% allocation to gold.
I'm a defensive investor by nature and find the PP very attrative. I'd like to pull the plug on FIRE next year and worry about having to return to work in the future if the portfolio tanks. My per hour wage today is the highest it will ever be, so building it back up in the future will be painful at half the salary.
Run lots of PP sims on cfirecalc.com
The PP has theoretical appeal to me and I used to think I'd eventually switch to something PPesque, but logically I have issues with accepting a long term lower return due to underperformance. That 1.1% difference between equities and PP over 40 years is big.
That small percentage leaves you over 50% more money in 40 years.
If I know I'm investing for the long haul so volatility doesn't bother me in the short term, I don't think I could personally be okay with what the PP's lower returns does to one's success rates, because that difference might be the difference between success and failure (or working longer to ensure success with lower returns).
25/25/25/25 instead of 75/25 drops your success rate from 93% on cfiresim's default scenario to 47%.
YMMV, of course, but something to think about from someone who's considered the PP in the past as it is very appealing intellectually, and come to that conclusion. :)
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I've been doing some research on the Permanent Portfolio (PP) and it makes a pretty strong case for owning gold.
Portfolio CAGR (1974-2011)
PP 9.3%
100% Equity 10.4%
100% Bonds 7.9%
50/50 Equity/Bonds 9.5%
Also, the PP provided a much lower level of volatility. I've been impressed with the PP past performance given it includes a 25% allocation to gold.
I'm a defensive investor by nature and find the PP very attrative. I'd like to pull the plug on FIRE next year and worry about having to return to work in the future if the portfolio tanks. My per hour wage today is the highest it will ever be, so building it back up in the future will be painful at half the salary.
Run lots of PP sims on cfirecalc.com
The PP has theoretical appeal to me and I used to think I'd eventually switch to something PPesque, but logically I have issues with accepting a long term lower return due to underperformance. That 1.1% difference between equities and PP over 40 years is big.
That small percentage leaves you over 50% more money in 40 years.
If I know I'm investing for the long haul so volatility doesn't bother me in the short term, I don't think I could personally be okay with what the PP's lower returns does to one's success rates, because that difference might be the difference between success and failure (or working longer to ensure success with lower returns).
25/25/25/25 instead of 75/25 drops your success rate from 93% on cfiresim's default scenario to 47%.
YMMV, of course, but something to think about from someone who's considered the PP in the past as it is very appealing intellectually, and come to that conclusion. :)
One thing to consider is that the pp has a higher sharpe ratio (historically). So you could have leveraged by 1.2x and beat the s&p with lower volatility. Leverage doesn't have to be margin, as you know, and in the context of the pp can usually be achieved by simply reducing the cash portion.
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One thing to consider is that the pp has a higher sharpe ratio (historically). So you could have leveraged by 1.2x and beat the s&p with lower volatility. Leverage doesn't have to be margin, as you know, and in the context of the pp can usually be achieved by simply reducing the cash portion.
Okay, so let's model this on cfiresim. What %s are you suggesting for each of the 4 assets?
I'm all for efficient frontiers!
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Great currency, okay speculative item, poor investment.
How is it a great currency? If I walk into a store now will they trade food for some gold? Would I shave pieces off a lump, or pay a whole bullion? How many places in the world can you buy stuff with gold?
If the doomsday happens would anyone really accept gold as payment? If I was sitting on a pile of extra food I don't think I'd trade it for shiny metals.
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arebelspy: At what withdrawal rate are you using to come up with the 47% likelyhood of a failure for the PP with a 25/25/25/25 allocation?
Long term success is key for me and that is why I'm struggling to decide how to allocate my assets. The long term return for the PP is comparable to a more traditiion portfolio although the difference in dollars is signficant over 40 years as you mentioned. I just need enough and not more, so I'm happy giving up some dollars for less volatility and some protection for a major currency crisis, etc.
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arebelspy: At what withdrawal rate are you using to come up with the 47% likelyhood of a failure for the PP with a 25/25/25/25 allocation?
Leaving everything default, just changing the AA. So 4%.
Long term success is key for me and that is why I'm struggling to decide how to allocate my assets. The long term return for the PP is comparable to a more traditiion portfolio although the difference in dollars is signficant over 40 years as you mentioned. I just need enough and not more, so I'm happy giving up some dollars for less volatility and some protection for a major currency crisis, etc.
I agree, but less dollars also means higher failure rate at some point during those years.
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Thanks, I've got some modelling to do.
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arebelspy: At what withdrawal rate are you using to come up with the 47% likelyhood of a failure for the PP with a 25/25/25/25 allocation?
Leaving everything default, just changing the AA. So 4%.
Long term success is key for me and that is why I'm struggling to decide how to allocate my assets. The long term return for the PP is comparable to a more traditiion portfolio although the difference in dollars is signficant over 40 years as you mentioned. I just need enough and not more, so I'm happy giving up some dollars for less volatility and some protection for a major currency crisis, etc.
I agree, but less dollars also means higher failure rate at some point during those years.
This is a result of garbage in, garbage out. Gold prices before 1974 (plus or minus a few years, depending on how you look at it) are useless because the gold price (in dollars) was pegged. 1933-1964, you weren't allowed to invest in gold.
That's why most analysis of the PP starts in the mid-70s. It's definitely a small sample compared to stocks, which is problematic in itself, but unless cfiresim somehow accounts for this, it's all we have.
edit: it looks like the cfiresim data for "cash" is also suspect -- short term rates were much higher than the .25% default -- over 10% in some years. cfiresim would need to add 3-mo or 1-year treasury data for a good PP simulation. Or, alternatively, the "growth of cash" parameter should be replaced with "growth of cash over inflation". I confirmed this is not the case by running a simulation starting in 1974 with 0 spending and 100% cash.
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This is a result of garbage in, garbage out.
Yep. Cfiresim is a fine tool for many traditional AAs, but it models the PP very poorly.
In addition to your points about Gold and Cash, it's important to note the Cfiresim bonds aren't PP-appropriate. Bonds in the PP are exclusively US treasuries between 20-30 years duration. Bonds in Cfiresim are the total corporate bond market, which has a shorter average duration and behaves differently.
Basically, half of the PP isn't really represented properly by Cfiresim, and another quarter only applies in certain timeframes. One should take any simulation runs with an appropriate grain of salt.
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This is a result of garbage in, garbage out.
Yep. Cfiresim is a fine tool for many traditional AAs, but it models the PP very poorly.
In addition to your points about Gold and Cash, it's important to note the Cfiresim bonds aren't PP-appropriate. Bonds in the PP are exclusively US treasuries between 20-30 years duration. Bonds in Cfiresim are the total corporate bond market, which has a shorter average duration and behaves differently.
Basically, half of the PP isn't really represented properly by Cfiresim, and another quarter only applies in certain timeframes. One should take any simulation runs with an appropriate grain of salt.
peaktotrough.com (http://www.peaktotrough.com/hbpp.cgi) seems to have better data, but doesn't model SWR/failure rate. Still helpful to compare different allocations.
For example (1974-today):
100% stocks - 10.16% CAGR / 14.41% stddev / 55.31% max drawdown
25%x4 PP - 8.97% CAGR / 6.69% stddev / 19.83% max drawdown
PP with no cash - 9.54% CAGR / 8.44% stddev / 25.46% max drawdown
so looks like you can't lever up enough just by adjusting cash (although I'm not sure rebalancing works right with no cash). You could choose to contribute to your PP instead of paying off your mortgage to lever, though.
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This is a result of garbage in, garbage out.
Yep. Cfiresim is a fine tool for many traditional AAs, but it models the PP very poorly.
In addition to your points about Gold and Cash, it's important to note the Cfiresim bonds aren't PP-appropriate. Bonds in the PP are exclusively US treasuries between 20-30 years duration. Bonds in Cfiresim are the total corporate bond market, which has a shorter average duration and behaves differently.
Basically, half of the PP isn't really represented properly by Cfiresim, and another quarter only applies in certain timeframes. One should take any simulation runs with an appropriate grain of salt.
peaktotrough.com (http://www.peaktotrough.com/hbpp.cgi) seems to have better data, but doesn't model SWR/failure rate. Still helpful to compare different allocations.
For example (1974-today):
100% stocks - 10.16% CAGR / 14.41% stddev / 55.31% max drawdown
25%x4 PP - 8.97% CAGR / 6.69% stddev / 19.83% max drawdown
PP with no cash - 9.54% CAGR / 8.44% stddev / 25.46% max drawdown
so looks like you can't lever up enough just by adjusting cash (although I'm not sure rebalancing works right with no cash). You could choose to contribute to your PP instead of paying off your mortgage to lever, though.
Thanks for the information. I knew about the restrictions and price fixing in the past on gold, but never connected it with Cfiresim. Running the sim it was showing 85% equities and 15% gold as the highest success ratio at 99.13% for 30 years and it actually performed well for the longer term. How the gold price fix or restrictions helps or hurt the success percentage is not fully understood. Thanks for the heads up.
The challenge or understanding of Cash being a drag because of the low interest rate is challenging to understand.
Are there other simulators or workarounds for gold?
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After doing some digging on the crawlingroad forum(PPP focused) it appears the optimal PP like allocation is as follows in terms of returns versus max drawdown.
15% cash
35% Bonds
15% Gold
35% Equity
This will likely be my allocation once I reach FIRE later this year. Plan to save 30x annual expenses as well as an extra precaution. I'm a nervous nelly, just can't image stopping work and having to go back at some point and start over.
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After doing some digging on the crawlingroad forum(PPP focused) it appears the optimal PP like allocation is as follows in terms of returns versus max drawdown.
15% cash
35% Bonds
15% Gold
35% Equity
This will likely be my allocation once I reach FIRE later this year. Plan to save 30x annual expenses as well as an extra precaution. I'm a nervous nelly, just can't image stopping work and having to go back at some point and start over.
With an asset allocation like this you would have a SWR of 3.5%. You would be killed if there is inflation.
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That allocation had a CAGR of approx 9.4% since 1972 and includes a period of significant inflation. I'd also argue that we are likely to have deflation in the US as we turn Japanese.
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That allocation makes me queasy. 35% equities? I hope you aren't planning for a long ER. It'll be a smooth ride, but so slow upward as to be dangerous. It'll help you if we crash right after you FIRE, but otherwise...
Best of luck to you cowtown.
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That allocation makes me queasy. 35% equities? I hope you aren't planning for a long ER. It'll be a smooth ride, but so slow upward as to be dangerous. It'll help you if we crash right after you FIRE, but otherwise...
Best of luck to you cowtown.
What's your equities allocation? I thought you had significant real estate assets.
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My paper portfolio is significantly more than 35% equities.
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My paper portfolio is significantly more than 35% equities.
Ok, but what percent of your total assets? I'm a fan of looking at total asset allocation -- for example I think it makes sense to count your emergency fund as "Cash"
You also seem to show general interest in the PP which is only 25% equities.
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I don't feel like reading 7 pages of this so apologies ahead of time if it's been said, but -
Gold is anti-mustachian, if mustachian means, in part, using common sense and looking for the best safe investment.
Absent a total financial meltdown and the demise of the US Dollar, gold will not perform as well as equities over the long term. Therefore any holdings in gold are holdings that fail to produce the best return. Equities in the form of index funds are quite safe, and will outperform gold. So gold is simply a second rate investment. It's arguable that not every investment that fails to return the absolute maximum ROI is anti-mustacian, but it's pretty easy to google an article on what X dollars worth of gold would be after Y amount of time. It's also pretty easy to do the same with equities. So, if Mustachianism can be said to include the idea that anyone investing should at least do a 5 minute google search first, gold is anti-mustacian.
My questions to those who are preparing for financial Armageddon are;
1. Just how long do you think gold will be used as actual currency? Don't you think we'll start up a new currency instead of carrying sacks of gold around? Other countries that have had their monetary system collapse have not continued to use gold for decades, but rather have instituted new currencies. According to some of the early posts about 11% of our gold-money supply needs to be used for industry/jewelry so we'll have a decreasing money supply unless we can step up gold mining to keep pace with currency needs as well as industrial needs. It would be as if dollar bills were useful for industrial applications and for jewelry.
2. How are you going to derive passive income from gold? If we use gold as money for the next several hundred years you still need to invest your money (gold) in equities or some other investment (real estate?) if you want to get ahead. Might as well get the equities now (they'll just pay your dividends in gold rather than dollars) unless you think all the corporations are going to be wiped out in the financial collapse.
3. Several years down the road, when we're supposedly still carrying sacks of gold to the grocery store, who will end up with the lions share of it? Probably the profitable businesses that are making dollars now. They'll simply make (earn) gold instead of dollars. I'd rather own a piece of those companies than have the gold under my mattress; wouldn't you?
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My paper portfolio is significantly more than 35% equities.
Ok, but what percent of your total assets? I'm a fan of looking at total asset allocation -- for example I think it makes sense to count your emergency fund as "Cash"
There are times when overall assets are relevant, and times when one's investment portfolio is relevant.
I don't think the percent of real estate to my total assets is relevant here. If someone owns a 1MM house and has 1MM in their portfolio at 70/30 and wants to FIRE on that portfolio, I'd look at their AA of that portfolio, not overall assets (i.e. I would not say they are at 35% equities, even though they are, it's not relevant). If they have 40k annual spending they want to support with that and hope to never move out (though selling may be a backup plan), then they need to know the failure rate for 4% of 1MM on 70/30.
Similarly my FIRE income strategy and real estate is not typical and not relevant.
Further, there is likely a time in the (perhaps not too distant?) future that I divest myself of all RE.
You also seem to show general interest in the PP which is only 25% equities.
Yeah, I love the idea in theory, but further research on what underperforming for years does to a portfolio long term has dissuaded me, as of now. If you're worried about sequence of returns risk, or you have no stomach for volatility and you will sell low at the next big dip, you might want to look into it. But it comes with a price, it's not a free lunch.
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You also seem to show general interest in the PP which is only 25% equities.
Yeah, I love the idea in theory, but further research on what underperforming for years does to a portfolio long term has dissuaded me, as of now. If you're worried about sequence of returns risk, or you have no stomach for volatility and you will sell low at the next big dip, you might want to look into it. But it comes with a price, it's not a free lunch.
In general, though, don't stocks NEED to generate scorching returns for a while in order to compensate for getting decimated regularly? As long as the PP consistently generates moderate real returns, it doesn't need to rack up multiple hyooge years, since it never really has a giant slide to recover from.
PPers accept that they won't ever see 35% years in return for missing -40% years. Just long stretches of 3-7% real returns:
(http://i58.tinypic.com/29m16e1.jpg)
vs
(http://i59.tinypic.com/x44yvk.jpg)
I'm still learning, but so far the PP doesn't seem stupid to me.
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My paper portfolio is significantly more than 35% equities.
Ok, but what percent of your total assets? I'm a fan of looking at total asset allocation -- for example I think it makes sense to count your emergency fund as "Cash"
There are times when overall assets are relevant, and times when one's investment portfolio is relevant.
I don't think the percent of real estate to my total assets is relevant here. If someone owns a 1MM house a
I agree you may be able to ignore home value. But my understanding was that most of your real estate holdings are investments. So they count as part of your "investment portfolio." Maybe I'm way off base here....
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Again, it depends on what you're trying to measure.
To me what's relevant is how much are you trying to withdraw off of what assets.
In other words, my RE may support some of my expenses via incoming rents, but then the rest of my expenses better be covered by my paper assets.
If my rents cover 10k of my 50k spending, and I have 40k left to cover, and I want a 4% SWR, I'd better have 1MM in paper assets too. And I'd look at what the AA of those paper assets were to see if they'd support a 4% WR over the timeframe I'm thinking.
The fact that my real estate also provides 10k is irrelevant to that fact. Whether it was worth 10k (providing a 100% annual return) and a tiny fraction (just under 1%) of my overall assets or worth 1MM (and providing a 1% annual return) and half of my overall assets - if selling it or tapping the equity was not in my plans, but just collecting those rents, then what matters is the paper portfolio and the expenses I'm expecting it to cover at my targeted AA and SWR.
Does that make sense?
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Does that make sense?
This is exactly how I think about my WR and asset allocation (I subtract the rental income generated by my single rental unit from my overall expenses, so with my paper portfolio, I'm really just shooting for it to cover the remaining expenses, and I therefore invest it using the asset allocation that I deem appropriate for my desired WR on the paper portfolio). And the reason is that the concept of a "withdrawal rate" doesn't make any sense in the context of income-producing real estate intended to be held indefinitely.
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Again, it depends on what you're trying to measure.
To me what's relevant is how much are you trying to withdraw off of what assets.
In other words, my RE may support some of my expenses via incoming rents, but then the rest of my expenses better be covered by my paper assets.
If my rents cover 10k of my 50k spending, and I have 40k left to cover, and I want a 4% SWR, I'd better have 1MM in paper assets too. And I'd look at what the AA of those paper assets were to see if they'd support a 4% WR over the timeframe I'm thinking.
The fact that my real estate also provides 10k is irrelevant to that fact. Whether it was worth 10k (providing a 100% annual return) and a tiny fraction (just under 1%) of my overall assets or worth 1MM (and providing a 1% annual return) and half of my overall assets - if selling it or tapping the equity was not in my plans, but just collecting those rents, then what matters is the paper portfolio and the expenses I'm expecting it to cover at my targeted AA and SWR.
Does that make sense?
Agreed, I think that is the only logical way to conceptualize it.
So the issue you have with the PP is that you don't think it can support the same withdrawal rate as a stock/bond index fund with a high percentage of stock?
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So the issue you have with the PP is that you don't think it can support the same withdrawal rate as a stock/bond index fund with a high percentage of stock?
Not on a long enough timeline, no.
If I were going for a 10 year ER with a 10% WR (or whatever - just making up short term numbers for illustrative purposes), the low volatility of the PP might be ideal, and the (lack of) growth not as big of an issue.
Over 30 or 40 years? The short term volatility you experience along the way doesn't matter nearly as much (the first few years aside, i.e. sequence of returns risk), but the overall long term performance does.
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Again, it depends on what you're trying to measure.
To me what's relevant is how much are you trying to withdraw off of what assets.
In other words, my RE may support some of my expenses via incoming rents, but then the rest of my expenses better be covered by my paper assets.
If my rents cover 10k of my 50k spending, and I have 40k left to cover, and I want a 4% SWR, I'd better have 1MM in paper assets too. And I'd look at what the AA of those paper assets were to see if they'd support a 4% WR over the timeframe I'm thinking.
The fact that my real estate also provides 10k is irrelevant to that fact. Whether it was worth 10k (providing a 100% annual return) and a tiny fraction (just under 1%) of my overall assets or worth 1MM (and providing a 1% annual return) and half of my overall assets - if selling it or tapping the equity was not in my plans, but just collecting those rents, then what matters is the paper portfolio and the expenses I'm expecting it to cover at my targeted AA and SWR.
Does that make sense?
Sure, it depends on what you're trying to measure. I'm trying to measure likelihood of not running out of money. In which case it does make a big difference what your RE is worth. Are you in an equal position if you own a $100k house in Nevada netting $1k/mo vs. a $500k house in California netting $1k/mo?
Now what if I tell you the guy in Nevada has $250k in bonds and $250k in stocks (50% paper equities exposure, $600k nw)
Oh and the guy in CA has $100k in stocks (100% paper equities exposure, $600k nw).
Which situation makes you more queasy? I honestly don't know what the answer should be, but I think the value of the RE matters in the overall AA.
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And that's why the details matter. That's exactly right dragoncar. But looking at a paper portfolio of 35% equities designed to cover spending at a 4% WR for 30+ years worries me.
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And that's why the details matter. That's exactly right dragoncar. But looking at a paper portfolio of 35% equities designed to cover spending at a 4% WR for 30+ years worries me.
I mean, that allocation would have given him 9.36% CAGR 1974-today, max drawdown of 17%. Should support his 3.3% withdrawal rate.
I have a hard time getting over the fact that we can't predict the future yet don't have any other alternative but to model past returns.
Another interesting graph: (http://gyroscopicinvesting.com/forum/permanent-portfolio-discussion/role-of-cash-in-the-pp/msg94876/#msg94876)
(http://i59.tinypic.com/2labyis.jpg)
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Yeah, that's not so interesting to me because of the "10" in the title.
Like I said, if you want stability over a decade, PP is great. If you want longevity over multiple decades, not as much. That consistant underperformance, compounded over decades, is what's problematic.
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Yeah, that's not so interesting to me because of the "10" in the title.
Like I said, if you want stability over a decade, PP is great. If you want longevity over multiple decades, not as much. That consistant underperformance, compounded over decades, is what's problematic.
I don't understand how it's problematic. Maybe you expounded somewhere else, but I don't remember. If the PP can support your chosen withdrawal rate with stability, who cares if it "underperforms?" Aren't you a proponent of the "when you've won, stop playing the game" credo, or am I confusing you with someone else?
I'd sure like to see that chart for 30-year, but we just don't have the gold data to back it up.
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Yeah, that's not so interesting to me because of the "10" in the title.
Like I said, if you want stability over a decade, PP is great. If you want longevity over multiple decades, not as much. That consistant underperformance, compounded over decades, is what's problematic.
I don't understand how it's problematic. Maybe you expounded somewhere else, but I don't remember. If the PP can support your chosen withdrawal rate with stability, who cares if it "underperforms?"
Because underperforming for decades leads to portfolio failure - when the catastrophic happens, your portfolio won't have gained enough to overcome that..
Aren't you a proponent of the "when you've won, stop playing the game" credo, or am I confusing you with someone else?
Yup. And I think for you to have won the game with a PP style allocation, you'll have to work a lot longer. That's fine in my book, but someone who's won the game with a 1.25MM portfolio and 45k spending may be fine at 60/40, but not 25/25/25, IMO. They haven't won the game yet if that is their AA.
I'd sure like to see that chart for 30-year, but we just don't have the gold data to back it up.
Right, but we have the chart data showing that even over that timeframe it has underperformed by a percent or two. Compound that over a few decades.
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As a counter-point to the skepticism, I'm retired at 37 and have 100% of my money in the Permanent Portfolio. I've studied it extensively, going so far as to model retirement performance myself rather than trust random advice or depend on online calculators (as pointed out earlier, CFiresim does not model the PP well at all). All of my research shows that the Permanent Portfolio is a fine choice for withdrawal rates below 4%, delivering consistent real returns in many different economic environments including ones where stocks are historically decimated. That consistency allows it to provide just as much retirement security as stock-heavy portfolios despite averaging slightly lower long-term total returns. I'm personally willing to make that trade in exchange for the smoother and more enjoyable ride along the way.
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Yeah, that's not so interesting to me because of the "10" in the title.
Like I said, if you want stability over a decade, PP is great. If you want longevity over multiple decades, not as much. That consistant underperformance, compounded over decades, is what's problematic.
I don't understand how it's problematic. Maybe you expounded somewhere else, but I don't remember. If the PP can support your chosen withdrawal rate with stability, who cares if it "underperforms?"
Because underperforming for decades leads to portfolio failure - when the catastrophic happens, your portfolio won't have gained enough to overcome that..
Aren't you a proponent of the "when you've won, stop playing the game" credo, or am I confusing you with someone else?
Yup. And I think for you to have won the game with a PP style allocation, you'll have to work a lot longer. That's fine in my book, but someone who's won the game with a 1.25MM portfolio and 45k spending may be fine at 60/40, but not 25/25/25, IMO. They haven't won the game yet if that is their AA.
I'd sure like to see that chart for 30-year, but we just don't have the gold data to back it up.
Right, but we have the chart data showing that even over that timeframe it has underperformed by a percent or two. Compound that over a few decades.
There's something inconsistent with the above. You say underperforming "leads to portfolio failure" because something catastrophic can happen. But the advantage of the PP is that it can underperform without portfolio failure exactly because it doesn't experience the same catastrophic draw-downs as the portfolio it's underperforming.
It sounds to me like 25% equities in the PP makes you "queasy" because it only allows a 4% SWR rather than a 5% SWR? Allowing 100% equities to have a higher SWR is the corollary of saying "you'll have to work a lot longer" with the PP's 4%.
Of course, gold outperformed the S&P for two decades from 1992-2012. Would you still say that "That consistant underperformance, compounded over decades, is what's problematic."
edit: just for the record, I'm not a gold bug and I personally hate owning the stuff. I have no opinion on how gold will perform in the future, although I personally hope it under-performs because that implies minimal international strife, the economy is doing well, high-paying jobs are plentiful, etc. But I like the effects of diversifying into non- or low-correlated assets.
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Gold is anti-mustachian, if mustachian means, in part, using common sense and looking for the best safe investment.
Absent a total financial meltdown and the demise of the US Dollar, gold will not perform as well as equities over the long term. Therefore any holdings in gold are holdings that fail to produce the best return. Equities in the form of index funds are quite safe, and will outperform gold.
Hey, just popping this (old) subject because Chris' post is a good example of the misunderstanding around gold's positive role in any portfolio. Let alone why doomers like it.
Gold, alone, is a bad investment. Probably the worse. You get cash's returns with stock's volatility.
But gold is not at all correlated with stocks, and that's an amazing trait. When stocks are low, you sell expensive stocks to buy more gold, and vice-versa.
It is interesting to see the efficient frontier of a stocks-gold portfolio :
https://www.portfoliovisualizer.com/efficient-frontier?s=y&mode=1&assetClass1=TotalStockMarket&startYear=1972&verticalAxis=2&assetClass2=Gold&fromOrigin=false&endYear=2014
A portfolio with 30% gold and 70% stocks would have provided better return and much less volatility than a 100% stocks portfolio -- yay, free lunch !
Even someone owning just 5% gold and 95% stocks will do better than a 100% stocks portfolio, with less volatility. As a bonus, you have 5% of your money available for zombie attacks. Even if you cherry-pick periods that are bad for gold (say, 1980 to 2000, the worse 20-or-more years period you could find), you get a smaller CAGR but a smaller std dev.
So, I don't know if gold is "mustachian" or not, whatever that means, but it is a rational investment even for the most optimist investors.
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That is a wildly cherry-picked time frame. If you move the start date to a few years later - 1976, the next low in gold prices, you'll see that gold can reduce volatility but doesn't enhance returns. Any analysis in which the ENTIRE effect is because of the first 10% of the sample suggests you're just looking at an artifact. Otherwise known as cherry picking.
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As I said, there are many time frames where gold would have reduced volatility bu returns, too.
As for the data I'm presenting, I didn't not cherrypick the starting and ending dates. I just took the biggest timeframe I could consider, i.e. from start of floating dollar (*) up until now. It's a 42-year timeframe. It can be an aberration, though. But if you run monte-carlo simulations with the same tool, using historical returns, for 30-year periods, a 4% withdrawal rate succeeds 85% of the time with 100% equities, 88% with gold. For 25 years, it is 89% vs 92%. For 35 years, 82% vs 86%. No matter the timeframe, a portfolio seems to provide a higher rate of success with 5% gold than without.
People seem to have almost religious issues with gold. Either they consider it's the only worth asset, or they consider it's a piece of cr*p. I don't care about the small stash of gold I own, I just like how it enhances my portfolio's returns and reduces its volatility.
(*) Considering gold returns before 1972 is error prone because
1) gold was a synonymous for cash, so you better held STT, you would have had gold plus a return
2) well, it was almost impossible to own gold, anyway.
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That may all be true, but the fact that all of the benefit comes from the first few years of your data set suggests that your result isn't generalizable. For Monte Carlo simulations, it's garbage in, garbage out - again, if you take out the first few years, the effect completely disappears. You're over interpreting an artifact.
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How do you define anti-Mustachian such that gold is anti-Mustachian (in the same way mindless consumerism, polluting, etc. is)?
You could argue that mining gold is massively resource intensive and environmentally destructive. These assets would be better deployed building wind turbines or developing more efficient battery technology.
I don't suppose you have ever considered the resources that are consumed by the construction & maintaince of tens of thousands of bank branch buildings, have you?
Snarky comments aside, gold is simply a commodity that acts like a currency relative to national fiat currencies. It works well as a diversifying investment, because it's price movements don't really corrolate with more typical investments such as stocks or bonds, and it is typically inverse corrolated with national fiat currencies. But if you don't like it, there are other ways to achieve the same end.
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That may all be true, but the fact that all of the benefit comes from the first few years of your data set suggests that your result isn't generalizable. For Monte Carlo simulations, it's garbage in, garbage out - again, if you take out the first few years, the effect completely disappears. You're over interpreting an artifact.
I'm not sure why you want to remove these years specifically, and not, for instance, the 1995-1999 period, that is a statistical aberration too.
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I don't suppose you have ever considered the resources that are consumed by the construction & maintaince of tens of thousands of bank branch buildings, have you?
I think with progress and technology, the bank branch will go away or be severely diminished in the next 20 years. I think it may track gold in adapting to a new economy and a new mindset of what is valuable or useful where brick and mortar branches are looked at as a thing of the past. I think that Gold and other shiny trinkets will also be viewed that way. Gold, Silver and other precious metals will drift to their commercial value vs. their fiat value. With commercial value being significantly lower than today's values of these metals.
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That may all be true, but the fact that all of the benefit comes from the first few years of your data set suggests that your result isn't generalizable. For Monte Carlo simulations, it's garbage in, garbage out - again, if you take out the first few years, the effect completely disappears. You're over interpreting an artifact.
I'm not sure why you want to remove these years specifically, and not, for instance, the 1995-1999 period, that is a statistical aberration too.
Would taking out that period eliminate the effect that you're observing? I'm not arguing that there's something weird about the first few years of your data. I'm arguing that if the effect that you're arguing is a benefit of gold only occurs because of those first few years, then it probably isn't an effect you should rely on.
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I don't suppose you have ever considered the resources that are consumed by the construction & maintaince of tens of thousands of bank branch buildings, have you?
I think with progress and technology, the bank branch will go away or be severely diminished in the next 20 years. I think it may track gold in adapting to a new economy and a new mindset of what is valuable or useful where brick and mortar branches are looked at as a thing of the past.
While I would agree with this statement, and would add that cryptocurrencies are likely to be a major driving factor, only time will tell.
I think that Gold and other shiny trinkets will also be viewed that way. Gold, Silver and other precious metals will drift to their commercial value vs. their fiat value. With commercial value being significantly lower than today's values of these metals.
Again, perhaps. But gold has been denigrated as an "ancient relic" for over a century, and has held it's monetary value premium quite well over that same century, while national currencies have not. It is an obvious fact of history that gold, and to a lesser extent, silver have held their buying power well during the age of national currencies. While it's also true that past performance is not a certainty of future successes, it remains a pretty good indicator. We would be doing an injustice to denigrate the investment value of gold, if we were not also mentioning it's historical success as a store of value & and general diversification asset. No, gold does not make a dividend. Yes, gold only really does well compared to national currencies that are doing poorly; but then that has also happened enough times in the past century to give holding gold, if only as a hedge against inflation or national bankruptcy, it's own niche. This might not mean much to someone who lives in the US or Canada, but it likely does for someone who lives in Argentina, India or China. Beware of normalcy bias.
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That may all be true, but the fact that all of the benefit comes from the first few years of your data set suggests that your result isn't generalizable. For Monte Carlo simulations, it's garbage in, garbage out - again, if you take out the first few years, the effect completely disappears. You're over interpreting an artifact.
I'm not sure why you want to remove these years specifically, and not, for instance, the 1995-1999 period, that is a statistical aberration too.
Would taking out that period eliminate the effect that you're observing? I'm not arguing that there's something weird about the first few years of your data. I'm arguing that if the effect that you're arguing is a benefit of gold only occurs because of those first few years, then it probably isn't an effect you should rely on.
I can't test that with the tool I have, but removing the three best years from the dataset certainly reduces the positive effect.
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The only reason to buy gold is if you are a jeweler. (Unless you invested it like I did, as a wedding ring. That paid off better than all my investing. A man is poor if he is only rich with money).
As an investment, it is costly to store, and doesn't compound. It is gambling, not investing. What happens when China realizes that it is dumb and dumps the stockpiles..
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Swedroe: Debunking Gold Mythology/ ETF.com
"In their June 2012 study, “The Golden Dilemma,” Claude Erb and Campbell Harvey examined these issues. In terms of being a currency hedge, they found that the change in the real price of gold seems to be largely independent of the change in currency values. In other words, gold is not a good hedge of currency risk."
Full article
http://www.etf.com/sections/index-investor-corner/swedroe-debunking-gold-mythology?nopaging=1
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I have no interest in trying to plan how I would act in apocalyptic scenarios and choose to ignore the odds.
Frankly, now that I think about it, storing gold at my place seems like a great plan to get mugged in that scenario.
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Okay guys. Keep denying actual data and all modern portfolio theory.
(fun fact : gold bugs react the same way when I talk to them about stocks : they say "stock investing is like gambling", that "it is doomed to fail", that "your broker can leave with your money", that "it will fail because of China", etc. and they just ignore the facts when you show them.)
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Would taking out that period eliminate the effect that you're observing? I'm not arguing that there's something weird about the first few years of your data. I'm arguing that if the effect that you're arguing is a benefit of gold only occurs because of those first few years, then it probably isn't an effect you should rely on.
I can't test that with the tool I have, but removing the three best years from the dataset certainly reduces the positive effect.
(http://s7.postimg.org/egnkhm2bf/60_40.jpg)(http://s10.postimg.org/ipbh3cil5/50_30_20.jpg)
When you look at the big picture, the diversification benefit of gold is not limited to the early 70's. It definitely had the biggest effect then, but it can help smooth out returns over other timeframes as well. Note that the median 10-year returns with and without gold are virtually identical, but the down periods along the way are shorter and less severe with some gold in the mix.
You can play with the percentages to determine how much gold (if any) is appropriate for your own portfolio, but to argue that gold has no value in a portfolio or is somehow "anti-mustachian" is silly IMHO. It's just another tool for portfolio diversification, and the fact that it is uncorrelated to both stocks and bonds is a nice feature.
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That portfoliocharts tool is amazing (beside visually showing what I meant above ;) ). Are you its author, Tyler ?
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Would taking out that period eliminate the effect that you're observing? I'm not arguing that there's something weird about the first few years of your data. I'm arguing that if the effect that you're arguing is a benefit of gold only occurs because of those first few years, then it probably isn't an effect you should rely on.
I can't test that with the tool I have, but removing the three best years from the dataset certainly reduces the positive effect.
(http://s7.postimg.org/egnkhm2bf/60_40.jpg)(http://s10.postimg.org/ipbh3cil5/50_30_20.jpg)
When you look at the big picture, the diversification benefit of gold is not limited to the early 70's. It definitely had the biggest effect then, but it can help smooth out returns over other timeframes as well. Note that the median 10-year returns with and without gold are virtually identical, but the down periods along the way are shorter and less severe with some gold in the mix.
You can play with the percentages to determine how much gold (if any) is appropriate for your own portfolio, but to argue that gold has no value in a portfolio or is somehow "anti-mustachian" is silly IMHO. It's just another tool for portfolio diversification, and the fact that it is uncorrelated to both stocks and bonds is a nice feature.
It's hard to tell for sure, but those figures still appear to support my point. Gold can serve as a diversification purpose, but in the data I've seen, holding gold doesn't improve returns, which was the original point I was criticizing.
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Well, Tyler, after exploring the website, you apparently are the author of these amazing tools. Excellent work, and thanks for that.
I especially like the Hurricane calculator. Here is what you get when you compare how a 100% stocks portfolio behaves vs a 80% stocks, 10% gold, 10% cash one, when you use a 5% WR. Remember we are talking about drawing cash from our portfolio, so the interesting part isn't the max result, or even the median one, but the min column (i.e, how badly things could have gone, had you implemented this strategy).
(I can't make screen captures, but the interested reader can run simulations on http://portfoliocharts.com/portfolio/hurricane/)
100% stocks -> 1000k leaves you broke after less than 20 years.
80/10/10 -> 1000k become 66k after 30 years.
In other words : while a 100% stocks portfolio after FIRE would only sustain a 4% SWR, you can enjoy a 5% SWR with just a bunch of gold and short term bonds. You would have to work for the beast for 20 years only, rather than 25 (YMMV, of cours, but that's 20% less). I think that is pretty "mustachian", no matter what that precisely means.
However, I have to agree, Beltim, on the fact that during growth of capital, until you are FIREd, the 100% stocks produces more wealth on average (although with more risk, too).
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However, I have to agree, Beltim, on the fact that during growth of capital, until you are FIREd, the 100% stocks produces more wealth on average (although with more risk, too).
No argument there. Risk and reward are usually related, and it makes sense for stocks to be higher risk and higher reward.
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Well, Tyler, after exploring the website, you apparently are the author of these amazing tools. Excellent work, and thanks for that.
Yep -- same Tyler. ;) I'm glad you find it helpful!
I also like the Hurricane for comparing retirement portfolios and exploring the positive effects of diversification. That's really a bigger issue than gold, and probably deserves its own discussion.
It's hard to tell for sure, but those figures still appear to support my point. Gold can serve as a diversification purpose, but in the data I've seen, holding gold doesn't improve returns, which was the original point I was criticizing.
I think that's a reasonable conclusion. I certainly would not recommend loading up on gold to increase returns. But adding some as one well-considered component of your asset allocation can help lessen overall portfolio volatility and does not necessarily reduce returns in the process. That's really modern portfolio theory in a nutshell.
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Well, Tyler, after exploring the website, you apparently are the author of these amazing tools. Excellent work, and thanks for that.
Yep -- same Tyler. ;) I'm glad you find it helpful!
I also like the Hurricane for comparing retirement portfolios and exploring the positive effects of diversification. That's really a bigger issue than gold, and probably deserves its own discussion.
It's hard to tell for sure, but those figures still appear to support my point. Gold can serve as a diversification purpose, but in the data I've seen, holding gold doesn't improve returns, which was the original point I was criticizing.
I think that's a reasonable conclusion. I certainly would not recommend loading up on gold to increase returns. But adding some as one well-considered component of your asset allocation can help lessen overall portfolio volatility and does not necessarily reduce returns in the process. That's really modern portfolio theory in a nutshell.
Tyler, can I ask what your total AA is? I know you run a PP, but not sure how much a VP changes the total allocation
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I'm currently 100% Permanent Portfolio. It's not for everyone, but it works very well for me personally. Everyone should come to their own well-educated decision on how to invest their own life savings.
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I'm currently 100% Permanent Portfolio. It's not for everyone, but it works very well for me personally. Everyone should come to their own well-educated decision on how to invest their own life savings.
The original portfolio mix by Harry Browne? Or something else. I am a metals & timber reit advocate, but even I can't fathom a portfolio with more gold & silver than stocks.
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This (http://portfoliocharts.com/portfolio/permanent-portfolio/) version. Rather than debating the portfolio theory, one can compare actual results directly to other popular portfolios at the link and decide what works best for you personally.
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This (http://portfoliocharts.com/portfolio/permanent-portfolio/) version. Rather than debating the portfolio theory, one can compare actual results directly to other popular portfolios at the link and decide what works best for you personally.
Well, that looks pretty good, but that version doesn't have anything to approximate the real estate and/or natural commodity resources portion. I, personally, have much less gold & silver, as well as some devoted to real estate/natural resources REITs. I particularly favor timber REIT's, because timber is one of those unique resources with a very long time horizon, as well as a multi-year harvest window; so if the timber market is down for a few years (because construction drops during a recession), the value of the timber REITs still don't drop that much, because the lumber companies tend to just wait a while longer to harvest, during which time the trees still grow. Nor can I imagine a future that wood products are no longer a useful manufacturing or construction input; there are many scenarios that wood composites are less expensive than, say, plastics or steel alternatives.
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RE doesn't fit in the theory behind PP (not very liquid, not the best investment no matter what the economic situation, not easy to rebalance). REITS are part of the stock portion, like any other kind of business.
But that's a good asset class. I like timber, too. I actually have some physical timber as part of my AA :)
To get back to the original topic (somewhat) I think physical RE (whether rentals, farms, timber, etc.) is a good thing to have when you don't want to own gold. It is a very good diversifier. I think it's important to have non-financial assets and, if it's not gold, then let it be RE.
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This (http://portfoliocharts.com/portfolio/permanent-portfolio/) version. Rather than debating the portfolio theory, one can compare actual results directly to other popular portfolios at the link and decide what works best for you personally.
Do you hold gold in an ETF?
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Do you hold gold in an ETF?
Yes. There are several good fund options with different benefits, and physical coins are a good choice as well.
Lots of Permanent Portfolio questions! Feel free to PM me this kind of stuff. There's no need to derail the thread with portfolio minutiae.
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Do you hold gold in an ETF?
Yes. There are several good fund options with different benefits, and physical coins are a good choice as well.
Lots of Permanent Portfolio questions! Feel free to PM me this kind of stuff. There's no need to derail the thread with portfolio minutiae.
Or come over to gyroscopicinvesting.com/forum if you can stand the political climate
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Do you hold gold in an ETF?
Yes. There are several good fund options with different benefits, and physical coins are a good choice as well.
Lots of Permanent Portfolio questions! Feel free to PM me this kind of stuff. There's no need to derail the thread with portfolio minutiae.
Or come over to gyroscopicinvesting.com/forum if you can stand the political climate
I really don't have the time for another forum, but I am curious. What's wrong with the political climate?
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Do you hold gold in an ETF?
Yes. There are several good fund options with different benefits, and physical coins are a good choice as well.
Lots of Permanent Portfolio questions! Feel free to PM me this kind of stuff. There's no need to derail the thread with portfolio minutiae.
Or come over to gyroscopicinvesting.com/forum if you can stand the political climate
I really don't have the time for another forum, but I am curious. What's wrong with the political climate?
Not that bad now, but at some point there was like a new thread every day: Something bad happened due to Obama
Also, some of the gold bugs lean a bit toward doomer
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I wonder if there are other commodities that detractors of gold would consider in it's place. Would a uranium ETF or copper ETF satisfy? Neither has a monetary premium, if that is the complaint with a gold ETF, and both has a well established industrial supply chain role. I'm considering the URA uranium ETF right now, because commodities have taken a pounding for the past several years, so it might be time to buy some....
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I wonder if there are other commodities that detractors of gold would consider in it's place. Would a uranium ETF or copper ETF satisfy? Neither has a monetary premium, if that is the complaint with a gold ETF, and both has a well established industrial supply chain role. I'm considering the URA uranium ETF right now, because commodities have taken a pounding for the past several years, so it might be time to buy some....
Not really, because the chief complaint about gold not being an investment is that it doesn't produce anything - any profits are due to changes in value of the commodity itself.
One exception might be timber land, if you consider that a commodity, because it actually does produce something rather than simply being resold at a higher value. Any sort of crop land would satisfy this criterion, actually, though I don't think most people consider these commodities.
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I wonder if there are other commodities that detractors of gold would consider in it's place. Would a uranium ETF or copper ETF satisfy? Neither has a monetary premium, if that is the complaint with a gold ETF, and both has a well established industrial supply chain role. I'm considering the URA uranium ETF right now, because commodities have taken a pounding for the past several years, so it might be time to buy some....
Not really, because the chief complaint about gold not being an investment is that it doesn't produce anything - any profits are due to changes in value of the commodity itself.
The last I checked, uranium is only valuable because it produces electricity.
Also, copper is an industrial input for a thousand products. Gold does share these notable uses.
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I wonder if there are other commodities that detractors of gold would consider in it's place. Would a uranium ETF or copper ETF satisfy? Neither has a monetary premium, if that is the complaint with a gold ETF, and both has a well established industrial supply chain role. I'm considering the URA uranium ETF right now, because commodities have taken a pounding for the past several years, so it might be time to buy some....
Not really, because the chief complaint about gold not being an investment is that it doesn't produce anything - any profits are due to changes in value of the commodity itself.
The last I checked, uranium is only valuable because it produces electricity.
Also, copper is an industrial input for a thousand products. Gold does share these notable uses.
"Produce" meaning that it doesn't get used up. And see the bolded part for more.
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IMHO, gold is interesting because it is not correlated with stocks, i.e with economic prosperity. That's not true of other commodities, especially copper, since it follows very closely (AFAIK) the ups and downs of stock markets.
What makes gold valuable as a diversifier *is* the very fact that it is useless. When the economy crumbles, nobody wants copper anymore because, well... The economy crumbles, so industrial uses tend to disappear. So, your copper ETF doens't limit your loss and doesn't provide an easy rebalancing opportunity. And when the economy flourishes, your stocks are doing great, even better than copper, so why care ?
OTOH, gold usually does not follow stocks in the recession ; quite the opposite, since it it is considered a "safe haven". Now you can sell your expensive gold to buy cheap stocks.
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But that's a good asset class. I like timber, too. I actually have some physical timber as part of my AA :)
Like a lot of things having too much or not diversifying geographically could hurt you. Timber looks great until, like the Pacific Northwest, you have a huge fire and lose your timberland. Not sure what insurance or just buying REITS that are diversified around the world would do to mitigate some of that risk, but it seems like every so many years there is a huge fire that wipes out a lot of timberland. A bit like Roulette!
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IMHO, gold is interesting because it is not correlated with stocks, i.e with economic prosperity. That's not true of other commodities, especially copper, since it follows very closely (AFAIK) the ups and downs of stock markets.
Copper is not terribly corrolated with the s&p500, but moreso than gold is. So copper is a bit of a mixed bag as far as a diversification asset goes. Copper is most corrolated with the housing and construction market, since much more copper is consumed in the manufacture of electrical & plumbing components than consumer product manufacturing. I asked the question from the perspective that gold is undesired, because the investor in question considers gold to be an "ancient relic". I really wasn't asking why gold would be a better choice.
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But that's a good asset class. I like timber, too. I actually have some physical timber as part of my AA :)
Like a lot of things having too much or not diversifying geographically could hurt you. Timber looks great until, like the Pacific Northwest, you have a huge fire and lose your timberland. Not sure what insurance or just buying REITS that are diversified around the world would do to mitigate some of that risk, but it seems like every so many years there is a huge fire that wipes out a lot of timberland. A bit like Roulette!
That's a bit of an overstatement. Also, timber companies have long ago noticed the risks of geocentralization, and are typicly spread quite wide. There is quite a bit of timberland in the US Southeast these days.
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... but it seems like every so many years there is a huge fire that wipes out a lot of timberland. A bit like Roulette!
There may or may not be reasons to own gold, but now you are just being broadly negative.
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Like a lot of things having too much or not diversifying geographically could hurt you. Timber looks great until, like the Pacific Northwest, you have a huge fire and lose your timberland. Not sure what insurance or just buying REITS that are diversified around the world would do to mitigate some of that risk, but it seems like every so many years there is a huge fire that wipes out a lot of timberland. A bit like Roulette!
Well, it's not a safe asset, for sure, but such a thing doesn't exist anyway. I have physical timber because I inherited it and because I like massive diversification. But betting on forests as one's main investment seems quite risky, indeed.
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... but it seems like every so many years there is a huge fire that wipes out a lot of timberland. A bit like Roulette!
There may or may not be reasons to own gold, but now you are just being broadly negative.
No kidding. I've worked for two of the four big timber REITs. If you look at a map of any of their ownership, and think that a single fire has the capability of wiping out a significant portion of their land holdings, then you must be expecting WWIII, which is going to destroy a lot more than timberland. The biggest risks to timber REITs are an extended downturn in market prices. They can usually weather a year of poor prices without much impact by reducing harvest, and getting creative with marketing, but ultimately, they're like any business with a big payroll and lots of overhead - they need operating income, and lots of it. You can only hold off the harvest for so long. Timber REITs were hugely impacted by the real estate crash, and their fortunes have been and will continue to be tightly linked to housing starts (and, on the West coast, to the Chinese economy, since many of the high-value logs get exported).
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But that's a good asset class. I like timber, too. I actually have some physical timber as part of my AA :)
Like a lot of things having too much or not diversifying geographically could hurt you. Timber looks great until, like the Pacific Northwest, you have a huge fire and lose your timberland. Not sure what insurance or just buying REITS that are diversified around the world would do to mitigate some of that risk, but it seems like every so many years there is a huge fire that wipes out a lot of timberland. A bit like Roulette!
That's a bit of an overstatement. Also, timber companies have long ago noticed the risks of geocentralization, and are typicly spread quite wide. There is quite a bit of timberland in the US Southeast these days.
I think everyone missed the part where I mentioned diversifying geographically and/or investing in REITS. If you have 400 acres of timberland that you are banking on using for retirement and a fire comes through and wipes it out you are in trouble. If you own .oooooo1% of a Timber REIT with assets across the world then you will be fine.
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When I started this topic on March 6, 2013, gold was $1580 an ounce. Today gold is $1,258 or 20% less than 4.5 years ago. Gold has not tracked inflation, has not kept up stocks, and has been detrimental to the PP. Where do people stand on Gold today? Is it still a good investment? I saw another poster asking if it is time to buy gold. Gold is still an interesting investment to me.
Thoughts?
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When I started this topic on March 6, 2013, gold was $1580 an ounce. Today gold is $1,258 or 20% less than 4.5 years ago. Gold has not tracked inflation, has not kept up stocks, and has been detrimental to the PP. Where do people stand on Gold today? Is it still a good investment? I saw another poster asking if it is time to buy gold. Gold is still an interesting investment to me.
Thoughts?
It is still a good chunk of my portfolio, close to the Golden Butterfly on portfolio charts. With re balancing I am buying low/selling high. I know based on the shiller index, we are highly inflated and a crash will probably happen eventually based on previous patterns. I rather pay some potential gains now when times are good so when times get bad I am barely feeling the decrease. Based on the last two major crashes, I have sold due to emotional triggers when I see my portfolio plunge. I most likely will not have to worry about that this time with my asset allocation which includes gold.
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When I started this topic on March 6, 2013, gold was $1580 an ounce. Today gold is $1,258 or 20% less than 4.5 years ago. Gold has not tracked inflation, has not kept up stocks, and has been detrimental to the PP. Where do people stand on Gold today? Is it still a good investment? I saw another poster asking if it is time to buy gold. Gold is still an interesting investment to me.
Thoughts?
F'in gold, man. Every time my PP makes a new high, gold takes a dump the next day (today). I hate gold but continue to hold it. I'm hoping some day it is high enough for me to re-balance into a golden butterfly, but I am loathe to sell low.
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When I started this topic on March 6, 2013, gold was $1580 an ounce. Today gold is $1,258 or 20% less than 4.5 years ago. Gold has not tracked inflation, has not kept up stocks, and has been detrimental to the PP. Where do people stand on Gold today? Is it still a good investment? I saw another poster asking if it is time to buy gold. Gold is still an interesting investment to me.
Thoughts?
I think it was a great diversifier over the last 100 odd years. Now I think it could have a place if you have a tonne of money - say a 2% WR and want to take a punt on diversifying your assets. That honestly is a really really poor reason to buy gold.
I think some people are going to get caught out by looking at the historical returns for gold over the last 100 years and realise the performance was specific to that time and place. A typical stocks/bonds portfolio will probably beat any sort of golden butterfly or PP type portfolio over the next 100 years. If you really wanted to diversify I think a better option would be a commodities index but the fees on that are higher than stocks/bonds portfolios.
The more I think about asset allocation the more I think the simplest approach works best.