re: Just dumped some cash and bought gold, good or bad?

So why is it when I talk with my financial planner all my equities are investments but when I told him I was buying some gold he said "gold is historically high, I would not buy it at all but if you do wait for it to drop below $1000 an oz".



Did he also tell you stocks are historically high, I would wait for a correction before I bought any at all?

While interest rate increases have driven down the price of metals in the past these artificial low rates are as just as likely to hammer stocks when they rise and that is what the fed is absolutely terrified of.
Stocks and metals both have their place in a portfolio, but nothing has ever remained as overpriced as stocks are right now. Either fundamentals have to vastly improve without upward motion in the market or prices will come down, you decide which is more likely and place your bets accordingly.

I agree the numbers seem absurd, BUT

Future value of $1.00 in 200 years at 7% is $752,931. Siegal says stocks have returned 6.5-7% after inflation since 1802. So I know his number here is correct.

I don't know how he figured bonds, bills, but link to the book is here.

There are a number of commentaries on the book and here is a pretty good one.

In a chart, you can see the value of $1.00 in 1802 is only .07 today due to inflation meaning the increase in the dollar value of gold over time has basically only kept up with inflation.

Now I'm sure there are all sorts of issues which would have to be dealt with to really understand relevance of these numbers, such as the complete lack of inflation for the 1st 150 years in the test period to constant inflation the last 50 years, but I firmly believe that bond, bills, and gold (and non-income producing land for that matter) are exceptionally poor investments over time and every study I've looked at confirms this.

One can cherry pick many, many segments of the timeline to prove what they like of course, but I'm pretty sure the reality is that commodities cannot come close to keeping pace with stocks over the long term in producing investor returns.

"stocks have returned 6.5-7% after inflation since 1802"

This quote would be an interesting debate if anyone would like to debate it reasonably and honestly.

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"stocks have returned 6.5-7% after inflation since 1802"

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TBH, I feel that is too long back.

Keep the historical records to the 1900s at most.

Not my view necessarily, but an interesting discussion to have. I'll start with a couple of observations and thoughts.

Most sources that I read adjust for inflation (I believe the above did as well) and for whatever reason start no earlier than 1923 (there are long boring white papers on why they use this year). They also break it down in to even 20 periods. Now their start dates and 20 year periods can be played with be others who want to further their own preconceived notions.

Gold as far as I can tell has never been a hedge against inflation with any consistency. It has outperformed assets classes for selected periods of time.

I can't find any credible source that pretends either non adjusted historical nominal returns, or historical returns are accurate for predicting future returns.

There are some really complicated academic adjustments applied to some of these studies. A lot of them are applied to get away from "averages" e.g. If you're up X% one year, and then down X times 2% the next year, the average has nothing to do with the value of the original dollar invested, and is very misleading and obviously not accurate.

Some of the stuff I've read really doesn't break gold in to its own asset class. It generalizes commodities. I'm not sure I agree with that based on investor perception.

In my opinion none of the time periods mean anything to anyone unless the time period is started when the individual concerned started investing in a specific asset class. Does anyone really care what gold returned between 1899-1910?

Edit - One interesting thing I read by an economist is that starting anytime earlier than 1982 is silly. He bases this on inflation prior to 1982. Anyway, it's all pretty subjective and academic.

Edit again. Personal opinion interjected here. Is gold an investment? One line of thinking clearly indicates gold is a trade because it is a zero sum game. Interesting they also maintain a trade in equities is an investment but don't seem to apply the same standard here. They would maintain everyone benefits from an equities trade. Another interesting debate.

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Exactly and that group of stocks today would automatically exclude any company that went out of business between 1802 and 2014.

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No it wouldn't.......


Did you not read what he said?


While someone could carelessly do it....it certainly doesn't mean that it must automatically include only the winners.

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His entire premise is impossible, There was no way to own the entire market every year to get the average rate of return.

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But you can replicate the effect quite easily.

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No offense, but I'm sure you don't understand what's being said

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It's pretty clear one of us does not understand

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Quick question, which do you think is more likely to happen first silver at 40$ or the dow at 34,000?

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Why not take a shot at this question?

I haven't read the book, but think I will try tonight. Summaries have indicated that he created his own 'indexes' for the years they did not exist. Inflation is a big issue, of course, and how to adjust for 'real' returns is somewhat arbitrary, but not really important as long as you discount all investments by the same factory. They may all be better or worse than indicated in real terms, but it's valid for comparison purposes.

I also am not sold on the rear view mirror having any relevance to the future. It seems obvious to me that as politics, economies, and technologies change, the data from past periods becomes less and less relevant to the future....BUT....all of those things have always changed and stock market returns seem to have always ended up having an excess returns relative to risk over other investment classes. Even countries like Germany & Japan, with their economies completely destroyed in WWII ended up returning from something like a 98% decline to give good returns.

The time period issue is the key of course as most of us aren't investing for 200 years. It's uncommon, but certainly not excessively rare to have 20 year periods with poor returns in the stock market.

Decade Average Return Per year
1900s 9.96%
1910s 4.20%
1920s 14.95%
1930s -0.63%
1940s 8.72%
1950s 19.28%
1960s 7.78%
1970s 5.82%
1980s 17.57%
1990s 18.17%
2000s 1.07%
2010-2013 16.74%

while this makes it look easy, the decades are arbitrarily divided at 00 years...I wonder how much different it would look by changing decades in 1,3,5 or whatever years.

The source above states the market has return 10.4% since 1900 before inflation. I think inflation is around 3-4, so we're looking at around 6-7%.

As far as gold being an 'investment', I guess it really doesn't matter whether it, or stocks, meet the Websters definition. I just made the statement that it wasn't form the perspective that it doesn't create any wealth or income other than the arbitrary number buyers put on it. In the end though, it doesn't matter if it's an 'investment' if one can sell it for more than one paid for it.

I personally don't choose to speculate on gold as I consider it to be extremely risky as it has very, very little inherent value and is subject to so many political and economic factors. Buying shares in a company that creates wealth is also subject to those factors, but has the advantage of being a 'living' thing that can adapt and react to continue to produce income.

too many words, huh

ETA: pdf of the book is online

What I don't understand is why you feel that this is some kind of smoking gun....arguing an assumption as an given and just walking away as if you have proven something.



Okay, lets use a defined index, S&P 500, formed in 1871.


The average price of gold in this year is 18.93.

At the end of 2013, gold was worth 1,247.

If you had placed that 18.93 in some S&P 500 index, you would have had 226,000 at the end of 2013.

There were no "picking winners retroactively" with this estimation.



Again, gold is nothing more than a commodity that you can make money off of the price swings. It is not a smart buy and hold asset. And it is not an effective inflation hedge either, no more than any other commodity.