I fail to understand just how im supposedly profiting from a 4-6% stock return when inflation is just at 6% (http://www.shadowstats.com/alternate_data/inflation-charts)
In this instance, gold/silver's ability to preserve against inflation is better than the stocks slowly losing out against inflation. I want to grow my purchasing power, not just my total $s.
Already refuted by others, but let me try to phrase this in a way that you cannot just throw numbers at to confuse and muddle a discussion. There is such a thing as general inflation (price increase for the average consumer), and personal inflation (price increase for you). For example, if you, in the mustachian idea, bike everywhere instead of taking the car, you will hardly be hit by a price increase or decrease on gasoline. If you own a Ford F150 and fancy cross country trips everywhere, then you will be heavily hit by a price increase or decrease on gasoline. Regardless of whether or not general inflation as measured by CPI is correct and defined correctly, there is a percentage, let's call it I
g, which is the correct general inflation percentage for the average consumer in the US. There is also a percentage, let's call it I
p, which is the correct personal inflation percentage for you and your consumption pattern. Basically, if you would do exactly the same next year as this year, it would have an I
p price difference. For example, if you take a 6 month trip to Russia every year, then 2013 will have been more expensive than 2014, which in turn will be more expensive than 2015 due to the fall of the Ruble, giving you a negative I
pI do not know how high each of these percentages are, and for the dicussion of investment results, you also do not necessarily need to know how high they are. Because, if you invest, you will get a percentage result of R in a year when measured in US$, without correcting for inflation. R is actually something that's easy to measure. If you invest 100k today, and have 120k next year at the same time, R was 20%. Any investment you do on the modern markets you will be able to put a monetary value on, and any investment you do outside of the modern markets you have calculation methods to put a monetary value on them. You can discuss how you measure and calculate it, but that also doesn't matter for the argument.
Regardless of how high your result R is, your personal inflation adjusted result is R - I
p. Your general inflation adjusted result is R - I
g. The higher the R, the better. Of course, you don't know R in advance, nor do you know I
p or I
g. So we work with estimating R and adjusting for risk, as well as estimating I
g.
The point is, regardless of how you look at an investment, the one with the higher monetary value after the same period of time, is the superior investment over that time.
Your point that gold/silver is a better hedge against inflation than the US stock market is not supported by proof. In fact, the graph I posted earlier shows the opposite, even when not measured in $ but in ounces of gold. One ounce of gold, buys you less of the US stock market today, than it did 10, 20, 30 or 40 years ago (and that's not counting the dividends received). As a blanket, generic statement, it is not supported by facts. That at any given time, gold/silver may be over/undervalued and the same is true for the stock market, that is true. I do not know if at this time gold/silver is over or underappreciated, nor do I know it of the stock market (although indications are that it is slightly overvalued).
Looking at empirical evidence however, more wealth was created by the stock market than by gold and silver.
@Xanentosnemos:
If you are able to generate 15% return on investment, regularly and with confidence, my suggestion would be to start an investment firm, charge a 2% management fee, and show you do it year in year out. The amount of money flowing to you should be enormous, especially if you can multiply using leverage. If the above does not apply, because the investment itself doesn't lend to leveraging and you're only able to get the 15% on smaller scale investments (say up to 5 million) then just invest the money there yourself.
I tend to be great with investments, I have no idea about opening an investment firm, but I can already guess theres a license required for it, and I am vaguely aware that when recommending investments your hands are tied by law to force diversification etc. So in reality, even if I went to school (I dont plan on being active that much longer, I plan on retiring completely and living off the income) and got the license, then opened the business. I'd never be able to recommend to my clients to do exactly what I do.
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For side note: http://www.cmi-gold-silver.com/monetarydigests/warren-buffett-buys-silver/
Buffett bought silver.
It was a slight joke to illustrate the point. On these forums, you will not find an advice for passive investments returning 15% or more annually, because if there was a consensus that these existed, they would already be the generic advice. The generic advice is, stuff your money in a low-cost index fund and leave it there until you retire, then withdraw 4% per annum.
I do not know what one would have to do in order to make an investment firm. With proven 15% annual returns over a longer of period of time, I'm sure hedge funds would also hire you for a hefty salary if you can replicate it with leverage and larger funds. Just saying, 15% annually over a longer period of time with larger amounts of money is absolutely slaughtering the market.
If you want the income passively, then settle for the market return.
If you want to work for it, then try to exploit and scale up your current 15% returns.
Fallenour and Xanatosnemos know each other and this thread is becoming a silly joke
I thought this the minute I read the response by Fallenour, but decided to try and answer anyway.