Before buying gold, have a look at these returns since 1975

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CULater
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Before buying gold, have a look at these returns since 1975

Post by CULater » Sat Dec 30, 2017 12:19 pm

Gold was uninvestible in the U.S. until 1975. Since that time, the cumulative returns (red line) have been about the same as for 1-month T-bills (blue line), while lagging T-bills from 1980 - 2011 (31 years). Both have lagged the returns from U.S. stocks substantially (yellow line). While there have been bursts of high returns from gold, it seems to have ended up just about matching inflation over the very long run, as have T-Bills, but with much higher volatility and decades of underperforming inflation (T-Bills).



Image
Last edited by CULater on Sat Dec 30, 2017 2:37 pm, edited 2 times in total.
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PFInterest
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Re: 43 years of Gold returns vs. Cash vs. U.S. stocks

Post by PFInterest » Sat Dec 30, 2017 12:24 pm

yup
theres a long quote from WB on this.....

hooray for never needing to buy gold.

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Re: 43 years of Gold returns vs. Cash vs. U.S. stocks

Post by oldzey » Sat Dec 30, 2017 12:31 pm

And here's what it looks like over 215 years:



Image



Source (page 6): https://www.cfasociety.org/sandiego/Lin ... 17-CFA.pdf



And here's a short quote from WB on gold: https://www.youtube.com/watch?v=3ncS59taPkg



Hooray - I don't buy gold, either! :sharebeer
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Re: 43 years of Gold returns vs. Cash vs. U.S. stocks

Post by 1nv35t » Sat Dec 30, 2017 5:43 pm

oldzey wrote:
Sat Dec 30, 2017 12:31 pm
And here's what it looks like over 215 years:



Image



Source (page 6): https://www.cfasociety.org/sandiego/Lin ... 17-CFA.pdf
Visualize a progression line midway between gold and stocks for a 50/50 stock/gold barbell as a alternative to bonds (one end of barbell tending to do well when real yields are negative (gold), the other tending to do well when real yields are positive (stocks), is just a more extreme version of a STT/LTT barbell). More generally such a middle road path in practice actually tends to be closer to the upper line due to rebalancing (adding-low/reducing-high type trading).

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Re: Before buying gold, have a look at these returns since 1975

Post by livesoft » Sat Dec 30, 2017 5:49 pm

"... touching it and maybe fondling it occasionally ..." <- This has been the number one reason to own gold reported by people on the forum, so Warren Buffett knows what people like even if he doesn't like what they like.
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Re: 43 years of Gold returns vs. Cash vs. U.S. stocks

Post by arcticpineapplecorp. » Sat Dec 30, 2017 5:56 pm

1nv35t wrote:
Sat Dec 30, 2017 5:43 pm
oldzey wrote:
Sat Dec 30, 2017 12:31 pm
And here's what it looks like over 215 years:



Image



Source (page 6): https://www.cfasociety.org/sandiego/Lin ... 17-CFA.pdf
Visualize a progression line midway between gold and stocks for a 50/50 stock/gold barbell as a alternative to bonds (one end of barbell tending to do well when real yields are negative (gold), the other tending to do well when real yields are positive (stocks), is just a more extreme version of a STT/LTT barbell). More generally such a middle road path in practice actually tends to be closer to the upper line due to rebalancing (adding-low/reducing-high type trading).
Most gold bugs I know (a few, albeit a limited sample size) don't ever talk about selling it (which rebalancing requires if/when it outperforms other assets over a short term period as it may have 2008-2010). If they believe in gold so much, why would they ever sell it? Some bury it in their back yard or other places where family don't even know it's there. Some hoard it for some future apocolyptic event thinking it will be valuable to them at that point (not sure about that. I'd rather have stockpiles of food and water). While Harry Browne was a staunch advocate of rebalancing which meant selling gold from time to time if it pushed the gold portion of the perm. portfolio above 25% it was even harder back then to do it (more costly) than today if you use a gold etf as a substitute. That being said I don't hear a lot of people talk about selling gold. I had one friend who sold some...to buy christmas presents for his kids. I don't buy gold except as decoration and in whatever electronic components they happen to be in, unbeknownst to me. I don't encourage others to buy it because it has a lousy long term track record and I like investments that appreciate above inflation (gold hasn't) over the long term. That never stops people from buying the shiny stuff believing it will make them rich as rich.
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Re: Before buying gold, have a look at these returns since 1975

Post by bhsince87 » Sat Dec 30, 2017 7:06 pm

livesoft wrote:
Sat Dec 30, 2017 5:49 pm
"... touching it and maybe fondling it occasionally ..." <- This has been the number one reason to own gold reported by people on the forum, so Warren Buffett knows what people like even if he doesn't like what they like.
I am one of those who advocates for this approach. And with all sincerity!

Fondling that stuff is like magic!

As an investment not so much. Store of value, less than average.

As a means of moving wealth from one locale to another, under the radar, it's still hard to beat. But metal detectors in every airport have put a damper on that too.
BH87

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Re: Before buying gold, have a look at these returns since 1975

Post by nisiprius » Sat Dec 30, 2017 7:40 pm

The problem with trying to approach gold, or any highly speculative investment rationally, is that if the past history is punctuated by extreme bubble-like spikes, then the past performance depends--even more so than with stocks--on how the endpoints are positioned with respect to those spikes. The re-establishment of private ownership of gold in the United States started off with a bang. It's just not clear whether or not 1975 is a "fair" starting point.

Incidentally, in the months immediately following legalization of private gold ownership, there were many ads for--and newspaper stories suggesting there was a fad for--little one-ounce mini-bullion bars to be worn as jewelry, e.g. like a charm on a chain around the neck. I don't know how widespread it was. I never saw anyone actually wearing one. I would have thought that a) they were not very pretty, and b) that wearing them was as prudent as flashing a roll of bills... but what do I know?
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Re: Before buying gold, have a look at these returns since 1975

Post by 1nv35t » Sat Dec 30, 2017 7:42 pm

bhsince87 wrote:
Sat Dec 30, 2017 7:06 pm
As a means of moving wealth from one locale to another, under the radar, it's still hard to beat. But metal detectors in every airport have put a damper on that too.
A safer method to "transport" it (but showing on the radar) is to sell to cash, electronically FX transfer that cash and repurchase physical gold at the desired target location. Mostly you'd be better served avoiding such costs however. For more general trading hold physical gold to amounts less inclined to be traded and use paper-gold (ETF's or whatever) for trading. Perhaps a 50/50 split of the two.

A barbell of global stocks (do well during positive real yield periods) and gold (does well during periods of negative real yields), whilst more volatile than bonds (such as a LTT/STT barbell), has lower counter party risk. Treasury bonds are after all a loan to the state, who can set interest rates and the taxation on any interest paid against that loan (in addition to inflationary erosion i.e. if the state decides to 'counterfeit' (QE/print money) and spend that money which has the tendency to devalue all other notes in circulation).

If you don't trade, such as rebalancing back to target weightings periodically, then you forgo the gold-dividend i.e. tendency to see the number of ounces in your safe increase over time.

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Re: 43 years of Gold returns vs. Cash vs. U.S. stocks

Post by nisiprius » Sat Dec 30, 2017 7:59 pm

1nv35t wrote:
Sat Dec 30, 2017 5:43 pm
Visualize a progression line midway between gold and stocks for a 50/50 stock/gold barbell as a alternative to bonds (one end of barbell tending to do well when real yields are negative (gold), the other tending to do well when real yields are positive (stocks), is just a more extreme version of a STT/LTT barbell). More generally such a middle road path in practice actually tends to be closer to the upper line due to rebalancing (adding-low/reducing-high type trading).
Except gold doesn't actually do what advocates say gold "tends to" do.



The huge run-up in gold price from 1998 to 2012 in the absence of serious inflation is a violation of the connection between gold and inflation. The obvious riposte is "yes, but it was great for gold owners." Yes, it was. But it puts into doubt the future predictability of gold. The claim is that gold can be trusted to spike, reliably, just when you need it. But if it spikes when you don't need it, then it might not spike when you do need it.



We can test the claim that "such a middle road path in practice tends to be closer to the upper line due to rebalancing" from 2004 to 2017, using VBMFX (Vanguard Total Bond) for "bonds" and GLD (SPDR Gold Shares) for gold. The blue line is 100% Total Bond. The yellow line is 100% GLD. The red line is a 50/50 mixture. This chart shows monthly rebalancing. I cannot agree that the red "middle road" path is "tends to be" closer to the yellow line. And notice, too, that while the yellow line has the highest return, once you take risk into account, the bond fund has by far the highest Sharpe ratio, the "middle road" lower, and the pure gold road the lowest.

Source



Image



We can see how much rebalancing helped by trying it again with no rebalancing. It is not as good as with rebalancing, but the difference is not huge. And the red line is actually closer to the yellow line without rebalancing. But I feel that the middle road path is, just as you'd expect, about halfway in between the assets that comprise it... with rebalancing or without.



Image
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Re: Before buying gold, have a look at these returns since 1975

Post by 1nv35t » Sat Dec 30, 2017 8:01 pm

nisiprius wrote:
Sat Dec 30, 2017 7:40 pm
It's just not clear whether or not 1975 is a "fair" starting point.
The US was a exception in compulsory purchasing investment grade gold prior to ramping up the gold peg price by 70% back in the 1930's. Other countries didn't impose such regulation and accordingly other country data can be used as guide. Go back to when the Pound was the predominant reserve currency and gold was pretty much set and remained constant for centuries. Whilst it broadly maintained purchase power interim volatility was considerable that saw periods of large swings between inflation and deflation. A volatile asset (one thats purchase power sees large swings) that is traded using even simplistic timing methods such as periodic target percentage weight rebalancing, will tend to do OK and tend to broadly see more ounces of gold being accumulated over time.

Long term data such as http://www.measuringworth.com/gold/ can be used to compare against inflation/stocks/bonds to gain a better broader feel (a stable gold price didn't equate to stable purchase power of other assets/investments).

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Re: 43 years of Gold returns vs. Cash vs. U.S. stocks

Post by 1nv35t » Sat Dec 30, 2017 8:35 pm

nisiprius wrote:
Sat Dec 30, 2017 7:59 pm
The huge run-up in gold price from 1998 to 2012 in the absence of serious inflation is a violation of the connection between gold and inflation.
Investors will tend to buy gold in pre-empt or during periods of net negative real yields. That might be a consequence of one or more of high taxation, high inflation relative to low interest rates. Or simply in reflection of anticipation of it being less likely to decline (losing less is a relative gain). There is no one easy answer as to its valuation, which drives its higher volatility.

US data 1872 onwards and average, median, stdev, min, max for TSM was of the order ...

10.5
11.2
18.3
-42.9
58.3

For gold

3.88
0.00
18.27
-32.15
151.80

Average of the two

7.2
5.6
18.3
-37.5
105.0

For 50/50 yearly rebalanced

7.2
6.9
12.8
-21.4
87.1

The arithmetic average figure of the average of the two compared to the 50/50 yearly rebalanced figure, however the 50/50 yearly rebalanced figure had a lower standard deviation than the simple average. Same average gain with lower standard deviation equates to a higher compound average. i.e. broadly that indicates there were elements of low/no or even inverse correlations between stocks and gold that helped lower its relative volatility as a combined blend that in turn would uplift the CAGR (and tend to move the middle road line more closer to the top lines CAGR). 8.9% CAGR for TSM, 2.7% CAGR for gold (average of the two = 5.8%), 6.5% CAGR for 50/50 rebalanced (with a relatively lower volatility as part of that). I don't have bond data for that period however inflation compounded at 2% such that 6.5% CAGR reflected a 4.5% CAGR real gain benefit which seems to me to be of the order of what bonds might have achieved.

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Re: Before buying gold, have a look at these returns since 1975

Post by 1nv35t » Sat Dec 30, 2017 8:45 pm

Check out a assumption that 50/50 stock/gold barbell being a proxy for bonds, such that for 50/50 stock/bonds you instead held 75/25 stock/gold

PV

PV data for Total Bond is limited to from 1987, and by-eye of the two lower charts of the (log scaled) progression and yearly changes clearly stock/gold is more volatile than bonds, but broadly produces similar overall outcomes/rewards.

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Re: Before buying gold, have a look at these returns since 1975

Post by Theoretical » Sat Dec 30, 2017 9:39 pm

What I have seen somewhere is that gold is very useful for storing a constant value over the extreme long term, so a nice men's suit in the 1800s cost about an ounce of gold and it still does today.

A highly volatile zero real return asset that's not really correlated to anything does have some diversification benefits, but you have to be willing to treat it without reference to it being shiny.

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Re: Before buying gold, have a look at these returns since 1975

Post by CULater » Sat Dec 30, 2017 10:22 pm

It sort of depends on which period you look at. If you look at the longest period in the U.S. that you could have owned gold, that is 1975-present. The tangency portfolio on the efficient frontier for gold, TSM, and IT treasuries only has 1%-2% gold. If you look at the period 2000-present, the tangency portfolio has about 15% gold. If you believe that the 1975-2017 period is most representative of what gold is likely to do during your investment horizon, then it doesn't make sense to buy it. If you believe that the shorter, more recent 17-year period is more representative then about 15% might make sense. Maybe split the difference and invest about 5%-10%? It's all guesswork.
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Re: 43 years of Gold returns vs. Cash vs. U.S. stocks

Post by linenfort » Sat Dec 30, 2017 10:59 pm

arcticpineapplecorp. wrote:
Sat Dec 30, 2017 5:56 pm
Most gold bugs I know (a few, albeit a limited sample size) don't ever talk about selling it (which rebalancing requires if/when it outperforms other assets over a short term period as it may have 2008-2010). If they believe in gold so much, why would they ever sell it?
craigr, known to many here, has said on another forum that he rebalanced out* of gold 3 times. (It may have happened more than 3 times, but that's what I remember as stated on some other forum). I take him at his word.

I imagine there are other gold bugs who also sold in the mid-to-late 2000s, i.e. "the aughts", but they probably don't hang out at Bogleheads.

*rebalanced out: most likely meaning back down to a 25% portion of his permanent portfolio.
Is it too early for an all-bond-portfolio thread?

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Re: Before buying gold, have a look at these returns since 1975

Post by Hawaiishrimp » Sat Dec 30, 2017 11:18 pm

I was once a gold bug myself (listened to "Coast to Coast" way too much) and have more than 6 digits in gold (GLD). Lucky enough, I was in low and gained 50%+ out of pure luck and speculation. I could easily lose just as much.

Silly me. :oops: My awakening moment realizing that Gold is not an investment was right after I clicked the "BUY" Button and saw the order "FILLED". I said to myself, "Now what? What does gold actually do? Who needs it? Does it produce anything underneath or just a sitting index waiting for bids....

I was worried because now I knew it's totally speculative; it doesn't produce any goods and services over time. It scared me to think about that. Now, I am totally out of gold (GLD), black gold (Oil) or liquid gold (Natural gas). I am a Boglehead. :beer
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Re: 43 years of Gold returns vs. Cash vs. U.S. stocks

Post by 1nv35t » Sun Dec 31, 2017 6:43 am

linenfort wrote:
Sat Dec 30, 2017 10:59 pm
arcticpineapplecorp. wrote:
Sat Dec 30, 2017 5:56 pm
Most gold bugs I know (a few, albeit a limited sample size) don't ever talk about selling it (which rebalancing requires if/when it outperforms other assets over a short term period as it may have 2008-2010). If they believe in gold so much, why would they ever sell it?
craigr, known to many here, has said on another forum that he rebalanced out* of gold 3 times. (It may have happened more than 3 times, but that's what I remember as stated on some other forum). I take him at his word.

I imagine there are other gold bugs who also sold in the mid-to-late 2000s, i.e. "the aughts", but they probably don't hang out at Bogleheads.
Since 2000 (to year end 2016), a 50/50 stock/gold barbell would have had you selling some stock to buy more gold in 47% (8 out of 17) years (assuming calendar year rebalance points); 53% of years selling some gold to buy more stocks. The arithmetic average of the yearly best performing asset being +17% whilst the average of the worst performing asset was near 0%.

Swings and roundabouts. For instance 2002 had stocks down -21% gold up +24% (total returns); 2013 had stocks up +33% gold down -28%.

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Re: Before buying gold, have a look at these returns since 1975

Post by Ping Pong » Sun Dec 31, 2017 7:05 am

Theoretical wrote:
Sat Dec 30, 2017 9:39 pm
What I have seen somewhere is that gold is very useful for storing a constant value over the extreme long term, so a nice men's suit in the 1800s cost about an ounce of gold and it still does today.

A highly volatile zero real return asset that's not really correlated to anything does have some diversification benefits, but you have to be willing to treat it without reference to it being shiny.
Stocks are an even better store of value. A man’s suit’s worth of stocks from the 1800s would be worth like 32 suits today.

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Re: Before buying gold, have a look at these returns since 1975

Post by mouses » Sun Dec 31, 2017 7:14 am

Shouldn't there be a giant dip in stocks in that chart around 1929 instead of something barely visible?

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Re: Before buying gold, have a look at these returns since 1975

Post by 1nv35t » Sun Dec 31, 2017 8:18 am

Ping Pong wrote:
Sun Dec 31, 2017 7:05 am
Stocks are an even better store of value. A man’s suit’s worth of stocks from the 1800s would be worth like 32 suits today.
For the men in suits. The financial sector is the worlds largest/richest sector and the funding of that activity (high cost real estate offices, wages/lifestyle) comes from 'investors'. Historically during postal trading days brokers and market makers had a field-day, spreads/fees of 10% not being uncommon. Factor in taxation as well, the tendency of investors to buy-high/sell-low and that the US was a successful above average emerging market outcome over that period and the average real world results were that for many a simple cash deposit investment could have compared equally. Other below average investors wouldn't even had enough for a shirt.

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Re: Before buying gold, have a look at these returns since 1975

Post by 1nv35t » Sun Dec 31, 2017 8:25 am

mouses wrote:
Sun Dec 31, 2017 7:14 am
Shouldn't there be a giant dip in stocks in that chart around 1929 instead of something barely visible?
Log scaling has that effect. The Wall Street Crash did follow the roaring 20's, where prices doubled-up several times in a row relatively quickly. The crash more or less just realigned things back down again (think bit-coin/tulips). 1973/74 in the UK saw something like -33%, -55% sequence of nominal returns, coupled with very high inflation. Imagine also drawing a income from that as well. Whilst there was a strong subsequent recovery (large gain), log scaling somewhat hides the realities (many had drawn-down to such little amounts of their lifetime saving/investments remaining that even the large gains were relatively small in the scale of things).

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Re: Before buying gold, have a look at these returns since 1975

Post by mouses » Sun Dec 31, 2017 8:47 am

Thanks, I should have looked more closely. I didn't realize it was a logarithmic scale.

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Re: Before buying gold, have a look at these returns since 1975

Post by tbradnc » Sun Dec 31, 2017 9:07 am

Could you please show a chart of the next 42 years? :)

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Re: Before buying gold, have a look at these returns since 1975

Post by david1082b » Sun Dec 31, 2017 9:08 am

1nv35t wrote:
Sun Dec 31, 2017 8:25 am
mouses wrote:
Sun Dec 31, 2017 7:14 am
Shouldn't there be a giant dip in stocks in that chart around 1929 instead of something barely visible?
Log scaling has that effect. The Wall Street Crash did follow the roaring 20's, where prices doubled-up several times in a row relatively quickly. The crash more or less just realigned things back down again (think bit-coin/tulips). 1973/74 in the UK saw something like -33%, -55% sequence of nominal returns, coupled with very high inflation. Imagine also drawing a income from that as well. Whilst there was a strong subsequent recovery (large gain), log scaling somewhat hides the realities (many had drawn-down to such little amounts of their lifetime saving/investments remaining that even the large gains were relatively small in the scale of things).
Even a linear chart of the data would make 1929-1932 look like peanuts since the chart starts in the early 1800s and continues to now. You'd need to stop the chart at 1933 in linear to see the big decline, which would have a side-effect of making the 1800s look like a flat line pretty much (a linear chart from 1800 to now would make everything up to the 1990s look very flat too). Also bear in mind that the chart is inflation-adjusted, and 1929-32 actually saw huge deflation, making the real decline much less bad than the nominal 90% price drop. It also includes dividends, and the yield in 1931-32 was pretty huge. No one lives 200 years of course, but this chart keeps getting posted because it's rather dramatic I suppose.

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Re: Before buying gold, have a look at these returns since 1975

Post by knpstr » Sun Dec 31, 2017 9:12 am

All my gold "investments" are in the form of my wife's white gold jewelry.
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Re: Before buying gold, have a look at these returns since 1975

Post by Call_Me_Op » Sun Dec 31, 2017 9:21 am

mouses wrote:
Sun Dec 31, 2017 7:14 am
Shouldn't there be a giant dip in stocks in that chart around 1929 instead of something barely visible?
The data is apparently low-pass filtered.
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Re: Before buying gold, have a look at these returns since 1975

Post by CULater » Sun Dec 31, 2017 10:36 am

It's interesting that since 1975 a portfolio of stocks and gold did better when it was NOT rebalanced at all. For 50/50 CAGR was about 10.4%, max drawdown was -46.6%, and Sharpe was 0.46. When rebalanced monthly CAGR was about 9.0%, max drawdown was 34.3%, and Sharpe was 0.39. Rebalancing gold reduced max drawdown and volatility a bit.

If you held 1-month T-Bills instead of gold, monthly rebalancing had CAGR of 8.6%, max drawdown of 28.3%, and Sharpe of 0.54 -- so T-Bills with rebalancing gave you a more efficient portfolio than gold and reduced max drawdown even more than gold (-28% vs. -34%) with about 0.4% lower compound annual growth. If not rebalanced, the stock + T-bills portfolio had a CAGR of 10.5% with max drawdown of 45.8%, and Sharpe of 0.52.

At least since 1975, T-bills have seemed to diversity stocks as well or better than gold - at least viewed in terms of risk-adjusted returns and portfolio drawdown, with similar compound return. You can get the return of T-bills from a bank savings account or money market account.

T-bills have no term, or interest rate, risk. Don't know why, but since 2010 the gold ETF, GLD, has had a higher term risk than 10-year treasuries. Does gold have interest rate risk? why?
May you have the hindsight to know where you've been, The foresight to know where you're going, And the insight to know when you've gone too far. ~ Irish Blessing

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Re: Before buying gold, have a look at these returns since 1975

Post by arcticpineapplecorp. » Sun Dec 31, 2017 10:48 am

1nv35t wrote:
Sun Dec 31, 2017 8:18 am
Ping Pong wrote:
Sun Dec 31, 2017 7:05 am
Stocks are an even better store of value. A man’s suit’s worth of stocks from the 1800s would be worth like 32 suits today.
For the men in suits. The financial sector is the worlds largest/richest sector and the funding of that activity (high cost real estate offices, wages/lifestyle) comes from 'investors'. Historically during postal trading days brokers and market makers had a field-day, spreads/fees of 10% not being uncommon. Factor in taxation as well, the tendency of investors to buy-high/sell-low and that the US was a successful above average emerging market outcome over that period and the average real world results were that for many a simple cash deposit investment could have compared equally. Other below average investors wouldn't even had enough for a shirt.
An ounce of gold 2000 years ago also bought a fine men's tailored toga (equivalent to today's men's suits). An ounce of gold has kept pace with inflation over the past 2000 years. It hasn't risen ABOVE inflation is the point. Some periods of time, better than inflation, other times, worse. Long periods at the rate of inflation (past is not prologue). Most are looking to grow assets above inflation. Otherwise just invest in stable value, i-bonds, tips. See below:
http://awealthofcommonsense.com/2015/07 ... d-returns/
"Invest we must." -- Jack Bogle | “The purpose of investing is not to simply optimise returns and make yourself rich. The purpose is not to die poor.” -- William Bernstein

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Re: 43 years of Gold returns vs. Cash vs. U.S. stocks

Post by arcticpineapplecorp. » Sun Dec 31, 2017 10:51 am

1nv35t wrote:
Sun Dec 31, 2017 6:43 am
linenfort wrote:
Sat Dec 30, 2017 10:59 pm
arcticpineapplecorp. wrote:
Sat Dec 30, 2017 5:56 pm
Most gold bugs I know (a few, albeit a limited sample size) don't ever talk about selling it (which rebalancing requires if/when it outperforms other assets over a short term period as it may have 2008-2010). If they believe in gold so much, why would they ever sell it?
craigr, known to many here, has said on another forum that he rebalanced out* of gold 3 times. (It may have happened more than 3 times, but that's what I remember as stated on some other forum). I take him at his word.

I imagine there are other gold bugs who also sold in the mid-to-late 2000s, i.e. "the aughts", but they probably don't hang out at Bogleheads.
Since 2000 (to year end 2016), a 50/50 stock/gold barbell would have had you selling some stock to buy more gold in 47% (8 out of 17) years (assuming calendar year rebalance points); 53% of years selling some gold to buy more stocks. The arithmetic average of the yearly best performing asset being +17% whilst the average of the worst performing asset was near 0%.

Swings and roundabouts. For instance 2002 had stocks down -21% gold up +24% (total returns); 2013 had stocks up +33% gold down -28%.
I like craigr and listened to his short lived radioshow/podcast which was in the vein of Harry Browne's radio show, but I wouldn't call him a gold bug. He was a proponent of the permanent portfolio which included gold but also other assets. Gold bugs like gold above stocks and other assets because they think stocks are too risky or easily manipulated, etc. and bonds are, well...tied to the health of one's government...which gold bugs tend to be...more libertarian leaning (generalizing), i.e. wanting to be independent from one's government. So when I talk about gold bugs I'm not talking about people who have a diversified portfolio. I'm talking about how people like Gold above all other assets and maybe have cash and gold only or maybe real estate as well but no stocks or bonds. These tend to be the gold bugs I hear about.

And because these gold bugs love their gold more than anything else, they don't tend to sell. If they're concerned about the apocolypse then they wouldn't sell their gold until after the catastrophe when they believe the price will go through the roof, or they'll use it as a new currency if governments ceased to exist (doomsday scenarios). These are the goldbugs I've heard from. Preppers I think they're also called (as in doomsday preppers).
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Re: Before buying gold, have a look at these returns since 1975

Post by nisiprius » Sun Dec 31, 2017 11:03 am

I looked at Sharpe ratios above, myself, but it's not clear that it makes any sense at all to do that kind of statistic on gold, or similarly speculative things (most commodities, let's not go down the rabbit hole of whether gold is a commodity). Or to determine whether or not it is better to rebalance.



It's not even clear that it makes much sense to do that kind of statistics with stocks, but that's another topic.



The thing is that with gold (and other things, but definitely gold), it is obvious that all statistics about it are going to be dominated by a small number of intense events. Most of them can simply be called "historical events." Political decisions, for example. You only get a handful of these per century. It's been quite a long time since I've heard anybody talking about taking Toynbee seriously, and Asimov's Hari Seldon and "psychohistory" was fiction. Unless you think you think that going on and off the gold standard follow a Poisson distribution and you believe you have accurate estimators of the Poisson parameters... unless you know the mean and standard deviation of the average size of a war... or the probability of McKinley being assassinated... or the probability of finding gold in California... or the probability of thinking you've found gold in the Black Hills and being bitterly disappointed... or the chances of Roosevelt deciding something, or the chances of Nixon deciding something... fuhgeddaboudit.



It's not driven by stationery process or a random walk or Brownian motion. It's a series of unique, unpredictable point events.



Image



In effect you have only two data points in four decades to work with. And you're probably limited to four decades because of excellent reasons to believe that the numbers drawn from after 1975 are drawn from a completely different sample than those drawn from between 1900 and 1975, which in turn are a different set from those drawn before 1900.



(In this thread, 1nv35t argued for using data before 1975, but in other threads when I've used data before 1975, gold advocates have objected to my using it).



Everything is going to depend on whether you choose a time period that includes both spikes, just the first spike, just the second spike, or just a period without spikes (i.e. the 25-year "normal" (?) stretch between them).
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Re: Before buying gold, have a look at these returns since 1975

Post by CULater » Sun Dec 31, 2017 11:46 am

The thing is that with gold (and other things, but definitely gold), it is obvious that all statistics about it are going to be dominated by a small number of intense events.
In other words, "Black Swans?" I think a lot of people are tempted to hold at least a little gold as a hedge against some terrible, unexpected thing that might decimate their other assets. Black Swan Insurance. You hope the policy never pays out. Other than that, I can't find a strong rationale for owning it as opposed to T-bills, bonds.
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Re: Before buying gold, have a look at these returns since 1975

Post by grayfox » Sun Dec 31, 2017 11:56 am

CULater wrote:
Sat Dec 30, 2017 12:19 pm
Gold was uninvestible in the U.S. until 1975. Since that time, the cumulative returns (red line) have been about the same as for 1-month T-bills (blue line), while lagging T-bills from 1980 - 2011 (31 years). Both have lagged the returns from U.S. stocks substantially (yellow line). While there have been bursts of high returns from gold, it seems to have ended up just about matching inflation over the very long run, as have T-Bills, but with much higher volatility and decades of underperforming inflation (T-Bills).
Gold is not really an investment in the sense of growth. It doesn't produce profit, that can be re-invested in more Gold, to produce more profits. There is no compounding.

I don't think it makes sense to analyze Gold as you would a growth investment like stocks.

Gold is a store of value over long periods. Put Gold in a vault and, 100 years later, it will buy a similar quantity of goods. Look at Gold Prices - 100 Year Historical Chart. Turn off Inflation-Adjusted and Log Scale

November 1913 19.66
December 2017 1299.20

That big rise is not growth. It just represents the loss of purchasing power of the dollar due to inflation.

Then use CPI Inflation Calculator
November 1913 19.66
November 2017 480.15

Gold was a good store of value over the past 104 years. The U.S. Dollar was not. Gold is not so great a store of value over 5, 10, 20 years. The Gold/Dollar ratio fluctuates too much. But there will always be demand for Gold.

Gold is also good as insurance against a nation's currency being devalued. Has that ever happened? I think that is why most people hold it. They know about inflation.
Last edited by grayfox on Sun Dec 31, 2017 12:18 pm, edited 1 time in total.
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Re: Before buying gold, have a look at these returns since 1975

Post by Jags4186 » Sun Dec 31, 2017 12:17 pm

Are long term stock returns truly useful if there was no mechanism for investing in a basket of stocks until the 1920s nor the index until the 1970s?

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Re: Before buying gold, have a look at these returns since 1975

Post by CULater » Sun Dec 31, 2017 12:28 pm

grayfox wrote:
Sun Dec 31, 2017 11:56 am
CULater wrote:
Sat Dec 30, 2017 12:19 pm
Gold was uninvestible in the U.S. until 1975. Since that time, the cumulative returns (red line) have been about the same as for 1-month T-bills (blue line), while lagging T-bills from 1980 - 2011 (31 years). Both have lagged the returns from U.S. stocks substantially (yellow line). While there have been bursts of high returns from gold, it seems to have ended up just about matching inflation over the very long run, as have T-Bills, but with much higher volatility and decades of underperforming inflation (T-Bills).
Gold is not really an investment in the sense of growth. It doesn't produce profit, that can be re-invested in more Gold, to produce more profits. There is no compounding.

I don't think it makes sense to analyze Gold as you would a growth investment like stocks.

Gold is a store of value over long periods. Put Gold in a vault and, 100 years later, it will buy a similar quantity of goods. Look at Gold Prices - 100 Year Historical Chart. Turn off Inflation-Adjusted and Log Scale

November 1913 19.66
December 2017 1299.20

That big rise is not growth. It just represents the loss of purchasing power of the dollar due to inflation.

Then use CPI Inflation Calculator
November 1913 19.66
November 2017 480.15

Gold was a good store of value over the past 104 years. The U.S. Dollar was not. Gold is not so great a store of value over 5, 10, 20 years. But there will always be demand for Gold.

Gold is also good as insurance against a nation's currency being devalued. Has that ever happened? I think that is why most people hold it. They know about inflation.
Well yes, notably in 1934 when the Gold Reserve Act changed the value of the dollar (which was pegged to gold) from $20.67 /oz. to $35 /oz. and also required U.S. citizens to surrender their gold to the U.S. Treasury, making it illegal to own gold in bullion form. Then again in 1971 when Nixon removed the gold standard completely. Gold had a huge spike in it's dollar value, but now it's no longer tied to currencies and trades more like a commodity. That pony can't repeat the trick. Now currencies free-float and are devalued all the time by the government vs. other currencies.
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Re: Before buying gold, have a look at these returns since 1975

Post by UpperNwGuy » Sun Dec 31, 2017 12:35 pm

I always get depressed when folk start discussing investing in gold. It makes me think that civilization is collapsing and that we will all need to buy guns, gold, and canned foods. I like to have a more optimistic view of the future.

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Re: Before buying gold, have a look at these returns since 1975

Post by grayfox » Sun Dec 31, 2017 12:46 pm

Look at historical gold prices for the past 200 years: Historical gold prices since 1792

1792 19.39
1841 20.67
1932 20.67
1934 35.00

20 dollars was worth about 1 ounce Gold from the 1791 on for about the next 140 years.
In round numbers $20 from 1792 to 1932. Gold was a stable store of value during that period.

Gold/Dollar ratio fluctuated slightly (see table in link) but the exchange rate didn't vary much, until Central Banks learned the benefits of using inflation to slowly devalue the dollar by 3% per year. So the we see the dollar devalue (CPI-U) but the Gold doesn't. So now the exchange rate is:

$1300 = 1 troy ounce AU

It's pretty clear that the dollar loses value every year. By design, they target 2.5% inflation, i.e. 2.5% devaluation. But they can't devalue gold. Hence, Store of Value.
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Re: Before buying gold, have a look at these returns since 1975

Post by arcticpineapplecorp. » Sun Dec 31, 2017 1:00 pm

grayfox wrote:
Sun Dec 31, 2017 12:46 pm
Look at historical gold prices for the past 200 years: Historical gold prices since 1792

1792 19.39
1841 20.67
1932 20.67
1934 35.00

20 dollars was worth about 1 ounce Gold from the 1791 on for about the next 140 years.
In round numbers $20 from 1792 to 1932. Gold was a stable store of value during that period.

Gold/Dollar ratio fluctuated slightly (see table in link) but the exchange rate didn't vary much, until Central Banks learned the benefits of using inflation to slowly devalue the dollar by 3% per year. So the we see the dollar devalue (CPI-U) but the Gold doesn't. So now the exchange rate is:

$1300 = 1 troy ounce AU

It's pretty clear that the dollar loses value every year. By design, they target 2.5% inflation, i.e. 2.5% devaluation. But they can't devalue gold. Hence, Store of Value.
good posts. if gold is a commodity and therefore price changes are a reflection of supply and demand, then couldn't the U.S. devalue gold (not sure why they'd want to) by flooding the market (selling) with the $11,041,059,957.90 worth of gold that the U.S. owns? This assumes there would not be sufficient demand for the extra $11,041,059,957.90 worth of gold that would suddenly be on the market.

https://www.fiscal.treasury.gov/fsrepor ... report.htm
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Re: Before buying gold, have a look at these returns since 1975

Post by CULater » Sun Dec 31, 2017 1:16 pm

grayfox wrote:
Sun Dec 31, 2017 12:46 pm
Look at historical gold prices for the past 200 years: Historical gold prices since 1792

1792 19.39
1841 20.67
1932 20.67
1934 35.00

20 dollars was worth about 1 ounce Gold from the 1791 on for about the next 140 years.
In round numbers $20 from 1792 to 1932. Gold was a stable store of value during that period.

Gold/Dollar ratio fluctuated slightly (see table in link) but the exchange rate didn't vary much, until Central Banks learned the benefits of using inflation to slowly devalue the dollar by 3% per year. So the we see the dollar devalue (CPI-U) but the Gold doesn't. So now the exchange rate is:

$1300 = 1 troy ounce AU

It's pretty clear that the dollar loses value every year. By design, they target 2.5% inflation, i.e. 2.5% devaluation. But they can't devalue gold. Hence, Store of Value.
I guess the Store was closed from 1980 to 2012? That's how long it was before an ounce of gold purchased in 1980 almost recovered it's value in inflation-adjusted dollars. But then right away, it started sinking again. Now an ounce of gold purchased in 2012 has lost about 1/3 of it's value in inflation-adjusted dollars. The Store is closed again. It has been closed for most of my lifetime. I need it to be open before I'm dead.
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Re: Before buying gold, have a look at these returns since 1975

Post by grayfox » Sun Dec 31, 2017 3:10 pm

Yes, why not measure from the top of the bubble in 1980 and the peak in 2012.

I'll start when they first have data for inflation, January-1913. Look at buying power of 20 USD vs inflation-adjusted 1 ounce of Gold at start of each decade.

Code: Select all

             20 USD          1 oz Gold
Jan-Year    Buying Power     (Inf-Adj)

1913          $20.00          $19.66
1920          $10.15          $10.17
1930          $11.49          $11.89
1940          $14.08          $23.99
1950           $8.33          $14.58
1960           $6.69          $11.81
1970           $5.18          $9.47

Code: Select all

1980           $2.52          $57.42
1990           $1.54          $31.58
2000           $1.16          $16.51
2010           $0.90          $49.19
2013           $0.85          $70.84
11/2017        $0.79          $50.72
2063           $0.248           ???        assuming 2.5% inflation rate
2113           $0.072           ??? 
Except for the 1930s, USD went steadily downhill. In 2017, 20 dollars only buys what 79 cents bought in 1913. Devalued!
At 2.5% inflation, by 2113, 20 dollars will be worth 7 cents.
Not a Store of Value.

Gold varied between $10 and $70. And before that it was about 20 for over 100 years.
Today, that same ounce of Gold now buys what $50 bought in 1913.
I would bet that in 2113 Inf-adj Gold price will still be somewhere between 10 and 70 1913 dollars.
Store of Value.
Last edited by grayfox on Sun Dec 31, 2017 3:28 pm, edited 1 time in total.
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Re: Before buying gold, have a look at these returns since 1975

Post by Stormbringer » Sun Dec 31, 2017 3:27 pm

The main reason to own gold is that you may not be able to bribe the border guards with bitcoins. :P
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Re: Before buying gold, have a look at these returns since 1975

Post by 1nv35t » Sun Dec 31, 2017 3:35 pm

grayfox wrote:
Sun Dec 31, 2017 12:46 pm
It's pretty clear that the dollar loses value every year. By design, they target 2.5% inflation, i.e. 2.5% devaluation. But they can't devalue gold. Hence, Store of Value.
In the British Pound era from 1790 onwards and up to WW1, when the cost of that war in effect bankrupted the treasury and the US$ stepped up to the mark, the tendency was to reward investors (lending to the treasury). Broadly at a relatively consistent 2% real rate after modest taxation. Gold and money were interchangeable such that T-Bills were as good as gold, and paid interest. Inflation broadly averaged out to 0%, but with volatility along the way (at times significant spikes in both deflation and inflation that clustered together). US$ at the helm (primary reserve currency) policy has been more to not reward investors. 0% real after lending when taxes and inflation were considered (not coincidental of central bank policies that target a 2% stable inflation rate and preference to avoid deflation). Investors were better served under that policy by the private sector such as a stock/gold barbell proxy for a bond. After dividend taxation that has yielded of the order 3.2% real, that combined with the 2% real for 1790 to WW1 years averaged overall to 2.6% annualised net real since 1790 with a reasonably consistent exponential trend line (r-squared 0.95).

As baby boomers have or shortly will enter drawdown rather than accumulation, and given that the younger generation are less inclined (or able) to invest/save, together with inflation and interest rates/yields being relatively low (asset prices relatively high), the inclinations are that the more usually watched limited rear view mirror impression of stocks over a few decades during which interest rates generally declined from relatively high down to recent lows (strong asset price increases) is not a particularly good guide as to what might be encountered in forward time. The exception would be if yields/interest rates/inflation did suddenly spike rapidly (prices declined a lot rapidly), where from that low prices/high yields base a repeat of the 1980's onwards type rewards could possibly occur. Gold provides a hedge against such transitions, as it did during the mid 1960's to 1980 years, as does it help smooth out the overall ride (100% stocks or 100% gold tend to be as volatile as each other).

Some don't like gold, however unlike other assets that also have those that wont invest, gold seems to attract those that feel they must voice their dislike of the asset.

All the best for the New Year.

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Re: Before buying gold, have a look at these returns since 1975

Post by CULater » Sun Dec 31, 2017 3:41 pm

I hope I live long enough to enjoy that Store of Value. All I know is that T-bills (e.g., bank savings account, money market) seemed to be a better place to shop since 1972 if all I wanted to do is preserve purchasing power over any given time frame. Nice thing about it is that I could go in and out of the T-Bill store at any given time during those 45 years and count on getting what I needed to spend in inflation-adjusted dollars. Gold was less dependable. It made a big difference just when I got in and got out of the Store of Value.
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Re: Before buying gold, have a look at these returns since 1975

Post by grayfox » Sun Dec 31, 2017 5:56 pm

Everybody has savings accounts and MMMFs. They are short term loans you make. They are useful to earn a small return when you might need the money soon. But you wouldn't use a savings account for long term money. Likewise, you wouldn't put near term money in stocks, LT bonds or gold.

If you need a certain amount of money on a certain date, buy a Treasury bond.
If you want growth, invest in stocks.
If you want a long term store for your wealth, gold.

The right tool for the job.
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Re: Before buying gold, have a look at these returns since 1975

Post by CULater » Sun Dec 31, 2017 7:09 pm

So which one looks like a stable store of wealth to you? The red line is the inflation-adjusted returns from T-Bills, and the blue line that jumps all over the place from positive to negative returns is the inflation-adjusted returns from Gold. If I wanted to preserve my dollar wealth by protecting it from inflation with any semblance of predictability, I'd choose the red line thing.



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Re: Before buying gold, have a look at these returns since 1975

Post by grayfox » Sun Dec 31, 2017 9:09 pm

CULater wrote:
Sun Dec 31, 2017 7:09 pm
So which one looks like a stable store of wealth to you? The red line is the inflation-adjusted returns from T-Bills, and the blue line that jumps all over the place from positive to negative returns is the inflation-adjusted returns from Gold. If I wanted to preserve my dollar wealth by protecting it from inflation with any semblance of predictability, I'd choose the red line thing.
You're missing the point. Gold can bridge wealth across Empires. The dollar can't do that.
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Re: Before buying gold, have a look at these returns since 1975

Post by nisiprius » Sun Dec 31, 2017 10:08 pm

grayfox wrote:
Sun Dec 31, 2017 9:09 pm
CULater wrote:
Sun Dec 31, 2017 7:09 pm
So which one looks like a stable store of wealth to you? The red line is the inflation-adjusted returns from T-Bills, and the blue line that jumps all over the place from positive to negative returns is the inflation-adjusted returns from Gold. If I wanted to preserve my dollar wealth by protecting it from inflation with any semblance of predictability, I'd choose the red line thing.
You're missing the point. Gold can bridge wealth across Empires. The dollar can't do that.
What empires?

According to Wikipedia's List of empires, they're all gone. The last one, the Portuguese Empire officially ended in 1999. And they haven't been very imperial in a long time. The British Empire was fading fast by episode 4 of season 2 of "The Crown," wasn't it?

But the next time I take the Cape to Cairo railway, I'll try to remember to bring some gold sovereigns with me.
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Re: Before buying gold, have a look at these returns since 1975

Post by arcticpineapplecorp. » Sun Dec 31, 2017 11:19 pm

Stormbringer wrote:
Sun Dec 31, 2017 3:27 pm
The main reason to own gold is that you may not be able to bribe the border guards with bitcoins. :P
but then the guards could easily confiscate all your gold and leave your for dead, right?
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Re: Before buying gold, have a look at these returns since 1975

Post by Top99% » Mon Jan 01, 2018 10:22 am

arcticpineapplecorp. wrote:
Sun Dec 31, 2017 11:19 pm
Stormbringer wrote:
Sun Dec 31, 2017 3:27 pm
The main reason to own gold is that you may not be able to bribe the border guards with bitcoins. :P
but then the guards could easily confiscate all your gold and leave your for dead, right?
If I had a nest egg 150-200x my expenses (which I don't) I could see storing 25-50x my expenses worth of gold in 3 different countries to guard against 2 (confiscation and destruction) of the 4 deep risks (inflation, deflation, confiscation and destruction) Bill Bernstein mentions. For inflation and deflation TIPS, stocks, alts and short term bonds/CDs will have to do well enough for us. I am a bit concerned about confiscation (Bill Bernstein's book points out one doesn't need to go back too far in US history to see why this is a concern) but don't have a big enough nest egg to do anything about it.
And the c-ion risk isn't something we can talk about on Bogleheads without getting threads locked.
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Re: Before buying gold, have a look at these returns since 1975

Post by CULater » Mon Jan 01, 2018 10:32 am

I agree that fiat currencies come and go -- it can take a while though. There is a non-zero risk that the USD could go, along with the empire, and since most of my wealth is denominated in USD that could be a problem. But I figure that I probably won't be around long enough for that risk to materialize in the rest of my lifetime. My multigenerational heirs can worry about it. I may buy some gold for them and bury it under a tree somewhere with a map marking the location.
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