Discussion in 'Bullion Investing' started by fretboard, Dec 10, 2019.
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It depends on your definition of outperform! Notice how Gold may have higher market value but also significantly higher volatility. This is a perfect example of Risk versus reward.
you can play with the chart yourself here
or how's this
In order to compare 2 different asset classes, you can't have starting/ending biases. The way to avoid this is to use ROLLING PERIODS where you see over a 30-year period how each asset class does, advancing the staring and ending periods by 1 year as you advance over time.
This takes into account total returns and volatility and eliminates timing biases.
If you look at the chart above, you see that the higher volatility of gold as well as the LACK OF INCOME/DIVIDENDS caps the 30-year rolling returns at about 6%. Stocks are much closer to the post-1929 long-term average of about 10% compounded returns annually.
Gotta know how to pick 'em.
Only one is batting 1.000.
The comparison was with the S&P 500, not the Finn 1 (or 4).
Look, I'll confess. I bought New Century Mortgage in 2006 or 2007 when it was offering a 20% dividend. I put several thousand dollars into it, and that money went to zero.
At about the same time, though, I put comparable amounts into other stocks, including Apple. The money I put into that is up over 15-fold.
You're talking about a few stocks that went to zero.
That's comparing apples to kumquats.
Gold also doesn't pay a dividend or interest....does not participate in the growth of the real economy....and is not a productive asset, aside from jewelry.
Ok, so how would you store it? Gold needs a safe, or a safe deposit box, or an armed homeowner. How are you going to do that? Stocks need none of those expenses.
How would you easily sell it when you want cash? Would you lug yourself and your metal down to the coin store, the pawn shop, or the local Starbucks to sell it on craigslist? That takes time and money.
How would you easily sell part of your gold stack? Are you going to be buying fractional gold? That carries a hefty premium. So now not only does gold need to outperform stocks. But it better out perform it by at least 7.5%, because the premium on 1/10oz gold Eagles is about 7.5%!
Look, gold is awesome. Silver and gold are fun to own. They are a great safety net if you lose your income and your traditional investments. But they are never, ever a replacement for stocks and bonds. There are just too many difficulties associated with physical investments.
Those fractionals can carry a premium on buyback, too. But there's generally a fixed component to transaction cost, so the smaller the amount you're buying or selling, the larger the bite that fixed component will take.
I fully agree with the rest of your comment. We didn't move to paper (now electronic) accounting because of some evil plot; we moved because it was cheaper, easier, safer, and more convenient than lugging around physical material as store of value/medium of exchange -- in general. (Yes, there are specific exceptions. No, the exceptions don't negate the general principle.)
Check it out:
Gold spot: $1471.16
Random Year Gold Eagles
Full Ounce $1526.21
Buy Back $1473.22
Spread: You purchase at 3.6% over spot. You sell back .14% over spot. You lose 3.46%
Random year 1/10 oz Gold Eagle $164.61
Buy Back $152.12
Spread: You purchase at 10.6% over spot. You sell back at 3.3% over spot. You lose 7.3%
spread was 7.5% greater.
I'm guessing this reflects those "fixed-overhead" costs I mentioned, although that wouldn't be relevant if you're (say) selling ten of them at a time.
It doesn't have to - it's money.
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