Gold vs 401k

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Akumaky
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Gold vs 401k

Post by Akumaky » Tue Feb 14, 2017 10:36 pm

Hi guys,

I'm 21 and have my first real career after college. I'm deciding how to invest. I want to put away 20% throughout my career life.

I'm confused.

This guy has a video which seems to have supporting wvidence that gold and silver returns are far superior to the dow, and sp 500.

I'm thinking of not finding my 401k and instead buying gold each month.

The guys video is here:

https://youtu.be/hUEtsuHG7Zk

What has me confused is, gold is a storage of wealth. But the market is a living entity, a true asset with returns.

Is he right? Is gold the better investment. He seems to back up his claim pretty well.


Edit to add something I didn't consider that was said below:
If you are at 25% marginal tax rate and you do not fund your Trad. 401K, you will pay 25% tax before buying the gold. So, how do you make money when you lost 25% right from the start?
Last edited by Akumaky on Wed Feb 15, 2017 3:03 pm, edited 2 times in total.

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prudent
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Re: Gold vs 401k

Post by prudent » Wed Feb 15, 2017 10:57 am

I know a lot of gold bugs and they have a tendency to look at things through rose-colored glasses.

After watching the video, a few thoughts came to mind.

1. You can't just look at changes in the S&P 500 over time without including dividends. If you include reinvested dividends (which is what most investors do), the S&P 500 returned 324% since 1/1/1997 (his 20 year period)- which beats the return for both gold and silver that he stated. In the 5 year period he used, the S&P returned 92%, while gold and silver both went down over that period. In the 10-year period, gold and the S&P with reinvested dividends performed the same - up 95.4%. Only in the 15-year period he used did gold outperform the S&P with reinvested dividends. So he chose 4 different time periods to compare metals to stocks and gold outperformed stocks in only 1 of the 4. How does this make a strong case for gold?

2. He notes that because silver has sunk so far from its all-time high, it would have to increase by 171% to again reach that all-time high. And he makes the strange assertion that it is more likely for silver to rise by that amount than gold, the Dow Jones, and the S&P 500. This does not logically make sense. Assets don't have to go up simply because they used to be more valuable.

I don't know if metals will outperform stocks in the future, but I know you can't look at the past and know what is going to happen.

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oldcomputerguy
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Re: Gold vs 401k

Post by oldcomputerguy » Wed Feb 15, 2017 11:22 am

Gold and silver do not generate earnings. So any return from them is due solely to price movement. This is what Benjamin Graham would call "speculation" rather than "investing". You're betting your entire nest egg on the chance that (a) the price of gold will rise, and (b) you'll be able to find someone to buy your shares at the higher price. It's like a pyramid scheme; sooner or later, the last guy will take it in the backside.

Don't be that guy.
It’s taken me a lot of years, but I’ve come around to this: If you’re dumb, surround yourself with smart people. And if you’re smart, surround yourself with smart people who disagree with you.

barnaclebob
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Re: Gold vs 401k

Post by barnaclebob » Wed Feb 15, 2017 11:43 am

What is the youtuber's motivation? Does he want to help you? Does he want to confirm his own belief system? Is he selling something? Is he trying to generate revenue from his video? Is his hypothesis that gold will beat stocks supported by any data other than backtesting?

He might be right but nobody knows.

Bastiat
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Re: Gold vs 401k

Post by Bastiat » Wed Feb 15, 2017 11:43 am

Akumaky wrote:
I'm thinking of not finding my 401k and instead buying gold each month.
Don't do that.

I have a small (~1%) portion of my portfolio in precious metals as an insurance hedge, but it is not an investment. Gold and silver are commodities, and as such any "investment" in them is mere speculation. You're hoping that someone at some point will be willing to pay more for the shiny rocks than you bought them for. Upon what basis would you ground this hope? Further, the dude in the video is using the "spot" price of gold to calculate returns. But you can't buy gold for that price; you will always pay a premium over spot when you buy, and suffer a discount to spot when you sell. Those transaction costs will pull down your returns. Then you have to store the gold somehow, etc. etc. Read this article by Warren Buffett.

So if gold is such a bad investment why do I include it in my portfolio at all? Because it provides insurance and a hedge against uncertainty and calamity. Gold did very well during the financial crisis. One of my grandparents escaped the iron curtain by bribing a border guard with gold; they would not have been able to do so with fiat currency. If you look at a situation like Greece a few years ago where bank accounts were frozen and ATM transactions were limited, or something like Venezuela more recently, gold could be immensely valuable in similar scenarios. But it is not an investment; retirement accounts with productive assets such as equities are a far better option.

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Re: Gold vs 401k

Post by KlangFool » Wed Feb 15, 2017 11:53 am

Akumaky wrote:
I'm thinking of not finding my 401k and instead buying gold each month.
Akumaky,

1) If you are at 25% marginal tax rate and you do not fund your Trad. 401K, you will pay 25% tax before buying the gold. So, how do you make money when you lost 25% right from the start?

2) How does gold make money when it does not generate income?

KlangFool

asif408
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Re: Gold vs 401k

Post by asif408 » Wed Feb 15, 2017 12:34 pm

Akumaky wrote:What has me confused is, gold is a storage of wealth. But the market is a living entity, a true asset with returns.
Ding, ding, ding! You've answered your own question. Trust your instincts, stay away from gold.

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ruralavalon
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Re: Gold vs 401k

Post by ruralavalon » Wed Feb 15, 2017 1:27 pm

Don't do it.

Gold and silver do not produce a product, provide a service, generate earnings, or pay a dividend. The companies whose stocks are in the S&P 500 index do that.

Any comparison that does include the stock dividends is extremely misleading.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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unclescrooge
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Re: Gold vs 401k

Post by unclescrooge » Wed Feb 15, 2017 6:58 pm

Akumaky wrote:Hi guys,
This guy has a video which seems to have supporting wvidence that gold and silver returns are far superior to the dow, and sp 500.

I'm thinking of not finding my 401k and instead buying gold each month.

The guys video is here:

https://youtu.be/hUEtsuHG7Zk

What has me confused is, gold is a storage of wealth. But the market is a living entity, a true asset with returns.

Is he right? Is gold the better investment. He seems to back up his claim pretty well.

Edit to add something I didn't consider that was said below:
If you are at 25% marginal tax rate and you do not fund your Trad. 401K, you will pay 25% tax before buying the gold. So, how do you make money when you lost 25% right from the start?
The video is misleading. He forgot to include dividends. Over the long run, gold might keep up with inflation, but it cannot keep up with an investment in productive companies. If that were the case, no one would invest in companies.

Fund your 401k - the government is subsidizing it!

I have a 2.5% allocation to gold and gold miners as part of my asset allocation in accounts outside of my 401k. I would never forgo the 401k to speculate in gold prices.

While I admit, I sold my primary residence at the height of the previous real estate boom and used some of the proceeds to buy gold, it was bought as a chaos hedge in case things got really bad. It was never an investment! [OT comment removed by admin LadyGeek] If not, it will just be as useful as a shinny paperweight.

Another thing to consider is when you sell gold, you don't pay the preferred capitals gains tax rate (between zero and 20%) but instead you pay a higher 28% collectibles tax.

Akumaky
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Re: Gold vs 401k

Post by Akumaky » Thu Feb 16, 2017 8:19 pm

unclescrooge wrote:
Akumaky wrote:Hi guys,
This guy has a video which seems to have supporting wvidence that gold and silver returns are far superior to the dow, and sp 500.

I'm thinking of not finding my 401k and instead buying gold each month.

The guys video is here:

https://youtu.be/hUEtsuHG7Zk

What has me confused is, gold is a storage of wealth. But the market is a living entity, a true asset with returns.

Is he right? Is gold the better investment. He seems to back up his claim pretty well.

Edit to add something I didn't consider that was said below:
If you are at 25% marginal tax rate and you do not fund your Trad. 401K, you will pay 25% tax before buying the gold. So, how do you make money when you lost 25% right from the start?
The video is misleading. He forgot to include dividends. Over the long run, gold might keep up with inflation, but it cannot keep up with an investment in productive companies. If that were the case, no one would invest in companies.

Fund your 401k - the government is subsidizing it!

I have a 2.5% allocation to gold and gold miners as part of my asset allocation in accounts outside of my 401k. I would never forgo the 401k to speculate in gold prices.

While I admit, I sold my primary residence at the height of the previous real estate boom and used some of the proceeds to buy gold, it was bought as a chaos hedge in case things got really bad. It was never an investment! [OT comment removed by admin LadyGeek] If not, it will just be as useful as a shinny paperweight.

Another thing to consider is when you sell gold, you don't pay the preferred capitals gains tax rate (between zero and 20%) but instead you pay a higher 28% collectibles tax.
28% tax? I don't follow. If I sell gold, I have to report it and pay taxes?

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prudent
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Re: Gold vs 401k

Post by prudent » Thu Feb 16, 2017 8:27 pm

Akumaky wrote: 28% tax? I don't follow. If I sell gold, I have to report it and pay taxes?
The income tax is 28% on the profit, if held longer than a year. If held less than a year, the profit is taxed as ordinary income. If holding a gold/silver ETF that is backed by bullion, profits are also taxed the same as if you held the bullion directly.

Whakamole
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Re: Gold vs 401k

Post by Whakamole » Thu Feb 16, 2017 8:33 pm

Akumaky wrote:28% tax? I don't follow. If I sell gold, I have to report it and pay taxes?
Absolutely. And you don't get a low capital gains rate either.

http://hogantaylor.com/as-collectibles- ... be-taxing/ is a pretty good run-down.

TMCD75
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Re: Gold vs 401k

Post by TMCD75 » Thu Feb 16, 2017 8:57 pm

I hold a small amount of gold because it's an attractive alternative investment to me. I also hold a small amount of silver, which arguably has more upside than gold.

I would never put more than 10% of my networth into metals. Metals serve as a hedge, they typically but not always move in the opposite direction of the markets. If you're worth 100k, you should only have about 10k in gold/silver.

I know many people here won't like this, but most gold transactions are done in cash and almost always under the 10k reporting limit. I would say 95% of gold transactions are conducted in this manner and it's untraceable at that point. Very few taxes are paid on gold/silver dealings, that's the facts.

HarleyHabit
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Re: Gold vs 401k

Post by HarleyHabit » Thu Feb 16, 2017 9:01 pm

Number 1 reason I decided not to touch gold. Eventually in my lifetime I believe we will be able to make the stuff. And once this is accomplished what is going to happen to the value of it? The moment that it's announced there's going to be a whole lot of broke goldbugs out there.

All ready patented
https://www.google.com/patents/US20080245187

Do a search and see what comes up under man made gold. It was more than enough to convince me to stay away from it.

rattlenap
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Re: Gold vs 401k

Post by rattlenap » Thu Feb 16, 2017 9:02 pm

Take it from me, someone who bought Gold back in 2001 when the spot price was below $300 an once. Do not buy gold, at least not right now. The real value of it is $500 per once or less. Your best bet is too wait another decade before even thinking of getting into it. Also, take into account that Gold is a fear investment. It's real value is purely psychological. You buy it at a certain price and hope someone else will pay more for it. If anything, it is a beautiful, worthless metal that just sits there and shines. You're better off buying stocks in an index fund.

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EyeYield
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Re: Gold vs 401k

Post by EyeYield » Thu Feb 16, 2017 9:28 pm

There have been some problems with this graph brought up in the past, mostly about the lack of accurate records kept in the early 1800's, but it is somewhat useful to make a point nevertheless.

http://www.marottaonmoney.com/wp-conten ... gure-1.jpg

Gold will probably get a bump as the dollar weakens, but that is an extremely narrow, non diversified, investing strategy.
"The stock market is a giant distraction from the business of investing." - Jack Bogle

jasc15
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Re: Gold vs 401k

Post by jasc15 » Thu Feb 16, 2017 11:04 pm

ruralavalon wrote:Gold and silver do not produce a product, provide a service, generate earnings, or pay a dividend.
But they can help win wars!

https://en.wikipedia.org/wiki/Calutron#Construction

During the Manhattan Project, it was discovered that over 5000 tons of copper would be needed for uranium isotope separation. Due to the wartime shortage, they realized silver would work well and requested 6000 tons of silver from the treasury to be drawn into wire and other shapes. Eventually 14,700 tons were transferred. Only 8 pounds were missing by the time the last of it was returned in 1970.

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Phineas J. Whoopee
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Re: Gold vs 401k

Post by Phineas J. Whoopee » Thu Feb 16, 2017 11:22 pm

Akumaky wrote:...
28% tax? I don't follow. If I sell gold, I have to report it and pay taxes?
If you had capital gain income, which is to say selling an asset for more than you paid, then yes it is taxable with certain special provisions depending on the asset. Congress specifically called out gold and silver coins and bullion as being subject to the collectibles rate. The 28% figure on the gain is a maximum. If your ordinary rate is less then that will apply, but the capital gain counts toward Adjusted Gross Income.

In some states coins and bullion are subject to sales tax.

If the youtube guy you linked to suggests otherwise he is either ignorant or deliberately misleading you.

PJW

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Phineas J. Whoopee
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Re: Gold vs 401k

Post by Phineas J. Whoopee » Thu Feb 16, 2017 11:33 pm

ruralavalon wrote:...
Gold and silver do not produce a product, provide a service, generate earnings, or pay a dividend. The companies whose stocks are in the S&P 500 index do that.
Silver is an industrial material, although with less usage than when it was essential to photography. Gold is used industrially now, too, mostly in electronics, but the quantity is an insignificant proportion of above-ground stocks. Neither produces a product, as you say, but to the extent they are consumed they are a product. I suppose if one was in business in an industrial supply chain there might be some value to be extracted preparing them for the next manufacturing step, but stuffing them in a safe deposit box isn't quite the same thing.
ruralavalon wrote:Any comparison that does include the stock dividends is extremely misleading.
Absolutely correct.

PJW

Raabe34
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Re: Gold vs 401k

Post by Raabe34 » Fri Feb 17, 2017 1:01 am

Yes please buy gold. I will enjoy less dollars going into the market over your lifetime so I can buy cheaper.

gerntz
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Re: Gold vs 401k

Post by gerntz » Sun Feb 19, 2017 5:38 pm

Akumaky wrote:Hi guys,

I'm 21 and have my first real career after college. I'm deciding how to invest. I want to put away 20% throughout my career life.

I'm confused.

This guy has a video which seems to have supporting wvidence that gold and silver returns are far superior to the dow, and sp 500.

I'm thinking of not finding my 401k and instead buying gold each month.

The guys video is here:

https://youtu.be/hUEtsuHG7Zk

What has me confused is, gold is a storage of wealth. But the market is a living entity, a true asset with returns.

Is he right? Is gold the better investment. He seems to back up his claim pretty well.


Edit to add something I didn't consider that was said below:
If you are at 25% marginal tax rate and you do not fund your Trad. 401K, you will pay 25% tax before buying the gold. So, how do you make money when you lost 25% right from the start?
I wouldn't put all my assets in anything. But nothing wrong and is probably good to keep a modest % of assets as gold. Me, I'm at 8-10% gold. I trust it's value more so than any government backed currency that can be & is constantly inflated away. Since gold is classified as a collectible, the Fed tax rate on its cap gains is 28%. So keeping it in 401k avoids that tax rate.

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Re: Gold vs 401k

Post by gerntz » Sun Feb 19, 2017 5:42 pm

prudent wrote:
1. You can't just look at changes in the S&P 500 over time without including dividends. If you include reinvested dividends (which is what most investors do), the S&P 500 returned 324% since 1/1/1997 (his 20 year period)- which beats the return for both gold and silver that he stated. In the 5 year period he used, the S&P returned 92%, while gold and silver both went down over that period. In the 10-year period, gold and the S&P with reinvested dividends performed the same - up 95.4%. Only in the 15-year period he used did gold outperform the S&P with reinvested dividends. So he chose 4 different time periods to compare metals to stocks and gold outperformed stocks in only 1 of the 4. How does this make a strong case for gold?
How does it make a strong case for anything that under performs that benchmark, like bonds for instance?

gerntz
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Re: Gold vs 401k

Post by gerntz » Sun Feb 19, 2017 5:45 pm

HarleyHabit wrote:Number 1 reason I decided not to touch gold. Eventually in my lifetime I believe we will be able to make the stuff.
LOL

gerntz
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Re: Gold vs 401k

Post by gerntz » Sun Feb 19, 2017 5:47 pm

rattlenap wrote:The real value of it is $500 per once or less.
The real value is the price. Anything else is opinion - and wrong.

gerntz
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Re: Gold vs 401k

Post by gerntz » Sun Feb 19, 2017 5:49 pm

EyeYield wrote:There have been some problems with this graph brought up in the past, mostly about the lack of accurate records kept in the early 1800's, but it is somewhat useful to make a point nevertheless.

http://www.marottaonmoney.com/wp-conten ... gure-1.jpg

Gold will probably get a bump as the dollar weakens, but that is an extremely narrow, non diversified, investing strategy.
That gold's price isn't dropping as the US dollar appreciates vs. other currencies should tell everyone something about gold's true value.

gerntz
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Re: Gold vs 401k

Post by gerntz » Sun Feb 19, 2017 5:53 pm

To ignore the inherent beauty of gold & silver & the ability to form them into pleasing shapes is mindlessness. Why value art? It's just paint thrown/smeared on canvas or wood.
Last edited by gerntz on Mon Feb 20, 2017 3:45 pm, edited 1 time in total.

wolf359
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Re: Gold vs 401k

Post by wolf359 » Sun Feb 19, 2017 6:29 pm

Akumaky wrote:Hi guys,

I'm 21 and have my first real career after college. I'm deciding how to invest. I want to put away 20% throughout my career life.

I'm confused.

This guy has a video which seems to have supporting wvidence that gold and silver returns are far superior to the dow, and sp 500.

I'm thinking of not finding my 401k and instead buying gold each month.

The guys video is here:

https://youtu.be/hUEtsuHG7Zk

What has me confused is, gold is a storage of wealth. But the market is a living entity, a true asset with returns.

Is he right? Is gold the better investment. He seems to back up his claim pretty well.


Edit to add something I didn't consider that was said below:
If you are at 25% marginal tax rate and you do not fund your Trad. 401K, you will pay 25% tax before buying the gold. So, how do you make money when you lost 25% right from the start?
Welcome to the board! I just noticed this was your first post.

You're going to find a lot of investing advice out there. Be careful. All of it will sound convincing. Some will be biased, and geared to sell you something. In this case, the Youtuber may not be selling anything directly, but he probably gets money from advertisements or views.

As an alternative, check out the book "If You Can," which lays out the Boglehead investment philosophy in a booklet form. It is available for free here http://efficientfrontier.com/ef/0adhoc/2books.htm. If you have more time, follow the links here for Getting Started: https://www.bogleheads.org/wiki/Getting_started.

There ARE Bogleheads who believe in gold, but it is generally not a good idea to put 100% of your assets into a single asset class. Check out tools like https://portfoliovisualizer.com to backtest various asset mixes over different time periods. Gold is available as an option on that tool. While you're at it, you can see how the Bogleheads 3-Fund portfolio performs, a straight investment in the Total Stock Market (which we generally prefer to the S&P 500), or other choices. You may want to check out Harry Browne's Permanent Portfolio, which has a significant gold component.

Before you throw your hard-earned dollars at any investment, make sure you understand it thoroughly. There's lots of ways to invest in gold. http://www.investopedia.com/articles/ba ... n-gold.asp

I have flirted with investing in gold, but I have reached the conclusion that it does not make sense. I may put something into it as a hedge, but I'm not ready to do so at this time.

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EyeYield
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Re: Gold vs 401k

Post by EyeYield » Sun Feb 19, 2017 10:24 pm

gerntz wrote:
EyeYield wrote:There have been some problems with this graph brought up in the past, mostly about the lack of accurate records kept in the early 1800's, but it is somewhat useful to make a point nevertheless.

http://www.marottaonmoney.com/wp-conten ... gure-1.jpg

Gold will probably get a bump as the dollar weakens, but that is an extremely narrow, non diversified, investing strategy.
That gold's price isn't dropping as the US dollar appreciates vs. other currencies should tell everyone something about gold's true value.
Except that it has dropped. As the dollar has risen since 2011, gold has dropped from about $1900 to just over $1200.

To cherry pick that same, short, 6 year time frame, the S&P500 is up about 100%.

There's nothing wrong with some precious metals in one's portofolio, I've owned silver bullion for decades, but to cease funding a 401k to invest in all gold is not a wise move.
"The stock market is a giant distraction from the business of investing." - Jack Bogle

gerntz
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Re: Gold vs 401k

Post by gerntz » Mon Feb 20, 2017 3:44 pm

EyeYield wrote:
gerntz wrote:
EyeYield wrote:There have been some problems with this graph brought up in the past, mostly about the lack of accurate records kept in the early 1800's, but it is somewhat useful to make a point nevertheless.

http://www.marottaonmoney.com/wp-conten ... gure-1.jpg

Gold will probably get a bump as the dollar weakens, but that is an extremely narrow, non diversified, investing strategy.
That gold's price isn't dropping as the US dollar appreciates vs. other currencies should tell everyone something about gold's true value.
Except that it has dropped. As the dollar has risen since 2011, gold has dropped from about $1900 to just over $1200.

To cherry pick that same, short, 6 year time frame, the S&P500 is up about 100%.

There's nothing wrong with some precious metals in one's portofolio, I've owned silver bullion for decades, but to cease funding a 401k to invest in all gold is not a wise move.
Gold's drop as a currency happened well before the US$ value increased - by about two years. It hasn't dropped in $ value since the $ took off mid-2014 - the point I was making. Net, it's kept pace with the $ as a currency since then. You're right that you cheery picked 6 years ago.

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Re: Gold vs 401k

Post by Jack FFR1846 » Mon Feb 20, 2017 4:14 pm

gerntz wrote:Gold's drop as a currency happened well before the US$ value increased - by about two years. It hasn't dropped in $ value since the $ took off mid-2014 - the point I was making. Net, it's kept pace with the $ as a currency since then. You're right that you cheery picked 6 years ago.
I'm either very confused with what you're saying or just confused in general. To try to understand your words, I looked at Apmex and checked the price of gold at the beginning of July 2014 (mid 2014) and today. It was $1300 in July 2014 and is $1200 today. Are you saying that the value of the $ has also dropped 8% in that time?
Bogle: Smart Beta is stupid

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Phineas J. Whoopee
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Re: Gold vs 401k

Post by Phineas J. Whoopee » Mon Feb 20, 2017 5:11 pm

Jack FFR1846 wrote:
gerntz wrote:Gold's drop as a currency happened well before the US$ value increased - by about two years. It hasn't dropped in $ value since the $ took off mid-2014 - the point I was making. Net, it's kept pace with the $ as a currency since then. You're right that you cheery picked 6 years ago.
I'm either very confused with what you're saying or just confused in general. To try to understand your words, I looked at Apmex and checked the price of gold at the beginning of July 2014 (mid 2014) and today. It was $1300 in July 2014 and is $1200 today. Are you saying that the value of the $ has also dropped 8% in that time?
I don't speak for gerntz, but there is a philosophy which says gold's value is always constant and unvarying, therefore any change in its price, expressed in any other currency (we'll get back to that), always and everywhere means the value of the other currency has changed, not the value of gold. It is a fringe view. In and of itself that doesn't mean it's wrong. I personally do not subscribe to it.

Based on that philosophy, the only true currency is gold, and all others are fake or at best derivative, hence the reference to gold as currency.

I hope that's helpful for understanding the posts.

PJW

Bastiat
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Re: Gold vs 401k

Post by Bastiat » Mon Feb 20, 2017 5:19 pm

gerntz wrote:
EyeYield wrote:
gerntz wrote:
EyeYield wrote:There have been some problems with this graph brought up in the past, mostly about the lack of accurate records kept in the early 1800's, but it is somewhat useful to make a point nevertheless.

http://www.marottaonmoney.com/wp-conten ... gure-1.jpg

Gold will probably get a bump as the dollar weakens, but that is an extremely narrow, non diversified, investing strategy.
That gold's price isn't dropping as the US dollar appreciates vs. other currencies should tell everyone something about gold's true value.
Except that it has dropped. As the dollar has risen since 2011, gold has dropped from about $1900 to just over $1200.

To cherry pick that same, short, 6 year time frame, the S&P500 is up about 100%.

There's nothing wrong with some precious metals in one's portofolio, I've owned silver bullion for decades, but to cease funding a 401k to invest in all gold is not a wise move.
Gold's drop as a currency happened well before the US$ value increased - by about two years. It hasn't dropped in $ value since the $ took off mid-2014 - the point I was making. Net, it's kept pace with the $ as a currency since then. You're right that you cheery picked 6 years ago.
Gold has not come close to keeping pace with the dollar since 2014. Here is a graph: http://www.macrotrends.net/1335/dollar- ... -ten-years

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Re: Gold vs 401k

Post by Jack FFR1846 » Mon Feb 20, 2017 5:25 pm

Phineas J. Whoopee wrote: I don't speak for gerntz, but there is a philosophy which says gold's value is always constant and unvarying, therefore any change in its price, expressed in any other currency (we'll get back to that), always and everywhere means the value of the other currency has changed, not the value of gold. It is a fringe view. In and of itself that doesn't mean it's wrong. I personally do not subscribe to it.

Based on that philosophy, the only true currency is gold, and all others are fake or at best derivative, hence the reference to gold as currency.

I hope that's helpful for understanding the posts.

PJW
Thank you. The old "one ounce of gold will buy a finely tailored suit" assertion, I guess.
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Re: Gold vs 401k

Post by patrick » Mon Feb 20, 2017 6:08 pm

Bastiat wrote: Gold has not come close to keeping pace with the dollar since 2014. Here is a graph: http://www.macrotrends.net/1335/dollar- ... -ten-years
The period shown actually has a 324% gain for gold with only a 35% gain for the dollar index. The selected scales (with one Y axis starting at zero but not the other) distort it to make it look like gold had a larger gain. Note also that the dollar index is not a purchasing power measure but rather an index of exchange rates between the dollar and other currencies.

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Re: Gold vs 401k

Post by gerntz » Tue Feb 21, 2017 4:32 pm

Jack FFR1846 wrote:
gerntz wrote:Gold's drop as a currency happened well before the US$ value increased - by about two years. It hasn't dropped in $ value since the $ took off mid-2014 - the point I was making. Net, it's kept pace with the $ as a currency since then. You're right that you cheery picked 6 years ago.
I'm either very confused with what you're saying or just confused in general. To try to understand your words, I looked at Apmex and checked the price of gold at the beginning of July 2014 (mid 2014) and today. It was $1300 in July 2014 and is $1200 today. Are you saying that the value of the $ has also dropped 8% in that time?
I should have said mid 15 vs. mid 14.

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Re: Gold vs 401k

Post by gerntz » Tue Feb 21, 2017 4:34 pm

Phineas J. Whoopee wrote:
Jack FFR1846 wrote:
gerntz wrote:Gold's drop as a currency happened well before the US$ value increased - by about two years. It hasn't dropped in $ value since the $ took off mid-2014 - the point I was making. Net, it's kept pace with the $ as a currency since then. You're right that you cheery picked 6 years ago.
I'm either very confused with what you're saying or just confused in general. To try to understand your words, I looked at Apmex and checked the price of gold at the beginning of July 2014 (mid 2014) and today. It was $1300 in July 2014 and is $1200 today. Are you saying that the value of the $ has also dropped 8% in that time?
I don't speak for gerntz, but there is a philosophy which says gold's value is always constant and unvarying, therefore any change in its price, expressed in any other currency (we'll get back to that), always and everywhere means the value of the other currency has changed, not the value of gold. It is a fringe view. In and of itself that doesn't mean it's wrong. I personally do not subscribe to it.

Based on that philosophy, the only true currency is gold, and all others are fake or at best derivative, hence the reference to gold as currency.

I hope that's helpful for understanding the posts.

PJW
Thanks. Pretty much how I think of it, fringe or not. The paper currencies' worths are at the whim of governments.

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Re: Gold vs 401k

Post by happyisland » Tue Feb 21, 2017 4:48 pm

gerntz wrote: Thanks. Pretty much how I think of it, fringe or not. The paper currencies' worths are at the whim of governments.
I'm confused. Isn't the value of gold also at the whim of the market? Aside from whatever industrial uses there are it seems like the value is just a social construct. Wrong?

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Re: Gold vs 401k

Post by toto238 » Tue Feb 21, 2017 5:17 pm

The value of basically everything is based on a social contract. If gold was only ever used for industrial purposes, it'd probably be sold at $10 a pound. Very very little is needed for industry, and there's other metals that do the job better and cheaper most of the time.

So why is Gold worth over $1000 an ounce? Because we all as a society decided it's worth something more than an ounce of iron, or lead, or dirt. There's no promise behind gold. Only hope. The hope that society doesn't decide at some point that it is in fact just a hunk of rock that's a little shiny and has some limited industrial uses.

Dollars have a promise behind them. They are promises from an actual entity, the Federal Reserve Bank. And they come with a guarantee that no other "currency" can claim. They will always be accepted as legal tender by the US Treasury for payment of taxes. As long as the US Government is still collecting taxes, there's going to be a need for dollars.

Bonds have a promise behind them. There's an actual entity on the other side of that contract that has agreed to pay you back that money with interest. That entity may be a national government, a state, a town, a corporation, or even a person. But there is something or someone that has promised to pay you that money back with interest.

Stocks/Equities have a promise behind them. There's people working for that company you own stock in that are attempting to create economic value every day, and pass that value on to their stockholders. Actual economic activity is taking place, with the benefits being passed onto you. If that company fails to do so, it will be replaced by a competitor who will through the process of "creative destruction" that defines capitalism.


Gold is a hunk of metal, nothing more. Be careful that you aren't the one holding it when the rest of the world realizes that.

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Re: Gold vs 401k

Post by Bastiat » Tue Feb 21, 2017 5:53 pm

patrick wrote:
Bastiat wrote: Gold has not come close to keeping pace with the dollar since 2014. Here is a graph: http://www.macrotrends.net/1335/dollar- ... -ten-years
The period shown actually has a 324% gain for gold with only a 35% gain for the dollar index. The selected scales (with one Y axis starting at zero but not the other) distort it to make it look like gold had a larger gain. Note also that the dollar index is not a purchasing power measure but rather an index of exchange rates between the dollar and other currencies.
That's neat.

Here's what I was responding to, which I quoted, again: "[Gold] hasn't dropped in $ value since the $ took off mid-2014 - the point I was making." The post you responded to is quoted above (also quoted in your post) with the relevant portion in bold.

Since 2014:

Dollar 7/2014: 101.95
Dollar 1/2017: 128.04
Return: 25.6%

Gold 7/2014: $1336.5
Gold 1/2017: $1204.9
Return: -9.8%

I hope this clears things up.

Also, the chart does not make it look like gold had a larger gain...

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Re: Gold vs 401k

Post by toto238 » Wed Feb 22, 2017 10:21 am

gerntz wrote:
prudent wrote:
1. You can't just look at changes in the S&P 500 over time without including dividends. If you include reinvested dividends (which is what most investors do), the S&P 500 returned 324% since 1/1/1997 (his 20 year period)- which beats the return for both gold and silver that he stated. In the 5 year period he used, the S&P returned 92%, while gold and silver both went down over that period. In the 10-year period, gold and the S&P with reinvested dividends performed the same - up 95.4%. Only in the 15-year period he used did gold outperform the S&P with reinvested dividends. So he chose 4 different time periods to compare metals to stocks and gold outperformed stocks in only 1 of the 4. How does this make a strong case for gold?
How does it make a strong case for anything that under performs that benchmark, like bonds for instance?
Bonds have a much lower risk profile than stocks, by any reasonable measure. It makes sense that their expected return would therefore be less. Bonds also have negative correlation with stocks, giving them special value in a balanced portfolio as one can reduce risk substantially while only slightly reducing expected return with just a little bit of bonds.

Gold is just as risky, if not more risky than stocks. Just like stocks, gold can drop 50% in a short period of time (or more), but unlike stocks, gold has a habit of not bouncing back for decades. Gold may arguably have some negative correlation with stocks, but not to nearly the extent that bonds have, and they can become correlated at the worst possible times.

Gold also makes for a very terrible form of currency. It's very difficult to split into smaller denominations. It's natural volatility makes it a terrible store of value for periods of less than 100 years (if you're looking for a store of value for 10,000 years then it may be a decent option). It is completely non-fungible without someone verifying exactly what its purity is.

Gold:
1. As risky as stocks, possibly more risky
2. Makes for a poor hedge
3. Makes for a poor currency
4. Expected real return on investment is 0%, possibly negative

Sounds like a great deal to me!

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Phineas J. Whoopee
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Re: Gold vs 401k

Post by Phineas J. Whoopee » Wed Feb 22, 2017 1:40 pm

toto238 wrote:...
Gold is a hunk of metal, nothing more. Be careful that you aren't the one holding it when the rest of the world realizes that.
:happy
The Onion: U.S. Economy Grinds To Halt As Nation Realizes Money Just A Symbolic, Mutually Shared Illusion
:happy

PJW

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Re: Gold vs 401k

Post by toto238 » Wed Feb 22, 2017 1:51 pm

Phineas J. Whoopee wrote:
toto238 wrote:...
Gold is a hunk of metal, nothing more. Be careful that you aren't the one holding it when the rest of the world realizes that.
:happy
The Onion: U.S. Economy Grinds To Halt As Nation Realizes Money Just A Symbolic, Mutually Shared Illusion
:happy

PJW
Love the Onion. :-)

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Re: Gold vs 401k

Post by Toons » Wed Feb 22, 2017 1:54 pm

Gold "produces" nothing.
Invest in Companies that grow earnings over time,,via
Index Funds. :happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

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Re: Gold vs 401k

Post by jasc15 » Wed Feb 22, 2017 2:25 pm

Toons wrote:Gold "produces" nothing.
Invest in Companies that grow earnings over time,,via
Index Funds. :happy
:D But joking aside, how directly is my ownership of a fund's underlying assets verified? It seems a bit easier to demonstrate my ownership of a company when owning individual stock.

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Re: Gold vs 401k

Post by Jiu Jitsu Fighter » Wed Feb 22, 2017 3:06 pm

toto238 wrote:The value of basically everything is based on a social contract. If gold was only ever used for industrial purposes, it'd probably be sold at $10 a pound. Very very little is needed for industry, and there's other metals that do the job better and cheaper most of the time.

So why is Gold worth over $1000 an ounce? Because we all as a society decided it's worth something more than an ounce of iron, or lead, or dirt. There's no promise behind gold. Only hope. The hope that society doesn't decide at some point that it is in fact just a hunk of rock that's a little shiny and has some limited industrial uses.

Dollars have a promise behind them. They are promises from an actual entity, the Federal Reserve Bank. And they come with a guarantee that no other "currency" can claim. They will always be accepted as legal tender by the US Treasury for payment of taxes. As long as the US Government is still collecting taxes, there's going to be a need for dollars.

Bonds have a promise behind them. There's an actual entity on the other side of that contract that has agreed to pay you back that money with interest. That entity may be a national government, a state, a town, a corporation, or even a person. But there is something or someone that has promised to pay you that money back with interest.

Stocks/Equities have a promise behind them. There's people working for that company you own stock in that are attempting to create economic value every day, and pass that value on to their stockholders. Actual economic activity is taking place, with the benefits being passed onto you. If that company fails to do so, it will be replaced by a competitor who will through the process of "creative destruction" that defines capitalism.


Gold is a hunk of metal, nothing more. Be careful that you aren't the one holding it when the rest of the world realizes that.

Where is your source that says gold should be valued at $10 / ounce? Yes, gold is a hunk of metal - a hunk of metal that has been highly desirable for thousands of years because of its scarcity, divisibility, fungibility, and durability. I guess central banks haven't figured out the true value of gold as you have since all of them own gold - a lot of it. They do not, however, own aluminum. When you say, "we, as a society," you must mean the entire world.

Why would you not short gold if you are so confident in your convictions that gold is worth $10.

I'm not making an argument for gold as an investment, but to say that all professional traders/investors are wrong about the price of gold is ridiculous.

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Re: Gold vs 401k

Post by toto238 » Wed Feb 22, 2017 3:28 pm

Jiu Jitsu Fighter wrote:
toto238 wrote:The value of basically everything is based on a social contract. If gold was only ever used for industrial purposes, it'd probably be sold at $10 a pound. Very very little is needed for industry, and there's other metals that do the job better and cheaper most of the time.

So why is Gold worth over $1000 an ounce? Because we all as a society decided it's worth something more than an ounce of iron, or lead, or dirt. There's no promise behind gold. Only hope. The hope that society doesn't decide at some point that it is in fact just a hunk of rock that's a little shiny and has some limited industrial uses.

Dollars have a promise behind them. They are promises from an actual entity, the Federal Reserve Bank. And they come with a guarantee that no other "currency" can claim. They will always be accepted as legal tender by the US Treasury for payment of taxes. As long as the US Government is still collecting taxes, there's going to be a need for dollars.

Bonds have a promise behind them. There's an actual entity on the other side of that contract that has agreed to pay you back that money with interest. That entity may be a national government, a state, a town, a corporation, or even a person. But there is something or someone that has promised to pay you that money back with interest.

Stocks/Equities have a promise behind them. There's people working for that company you own stock in that are attempting to create economic value every day, and pass that value on to their stockholders. Actual economic activity is taking place, with the benefits being passed onto you. If that company fails to do so, it will be replaced by a competitor who will through the process of "creative destruction" that defines capitalism.


Gold is a hunk of metal, nothing more. Be careful that you aren't the one holding it when the rest of the world realizes that.

Where is your source that says gold should be valued at $10 / ounce? Yes, gold is a hunk of metal - a hunk of metal that has been highly desirable for thousands of years because of its scarcity, divisibility, fungibility, and durability. I guess central banks haven't figured out the true value of gold as you have since all of them own gold - a lot of it. They do not, however, own aluminum. When you say, "we, as a society," you must mean the entire world.

Why would you not short gold if you are so confident in your convictions that gold is worth $10.

I'm not making an argument for gold as an investment, but to say that all professional traders/investors are wrong about the price of gold is ridiculous.
Apparently you missed the usage of the very important word "if" in what I said. I'll repeat it here:
If gold was only ever used for industrial purposes, it'd probably be sold at $10 a pound.
I never said that this circumstance would ever happen. Just that if it did, it would probably sell at a bit of a premium to copper due to rarity but not by many orders of magnitude. Copper sells at $2-3 per pound. I figured $10 a pound for some other metal that is only ever used for industrial purposes but is more rare seems about right. $100 seems too high, though anything between $5 and $50 seems believable.

Only a very small portion of the world's supply of gold is being used for industrial purposes. A larger portion is used for jewelry. A larger portion than that is used by investors and financial institutions for investment purposes. If you remove the demand from investors and jewelry makers, you can bet your bottom dollar its value would plummet. That's the law of Supply and Demand. This is unlikely to occur though.

Also I hope you're not expecting me to defend central banks holding gold, or professional investors/traders. The traders are accurately pricing gold right now for today's supply and today's demand. It's not their job to justify that demand and that supply. The central banks make questionable decisions all the time. Ditto for "professional investors" who on average cannot beat any fair index they're compared against.

I don't claim to predict the future. But it seems to me that investing in things that have actual real economic value will probably be better over the long-term. Instead of buying shiny rocks on the hopes of selling them back to some other sucker later down the road.

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