6 ms·

I'm no financial advisor, but I'd fire the person who recommended I buy gold as a long term investment.

by akozak 9y ago

alejohausner 9y ago
Actually gold is a very good long term investment. Here are some year-end closing prices: Year gold S&P500 1972: 64 118 2015: 1060 2044 Ratio: 16.5 17.3 True, gold does not have a yield, but it has gone up a lot over the years.
- kelnos 9y ago
  Cherry-picking two dates doesn't really tell us much. Volatility year-over year would be useful to see, and, as they say, past performance is not an indicator of future earnings. A decision to invest (or not invest) in gold should be based on your current expectation of the future.
  - candiodari 9y ago
    Ah come on. We both know that the basic claims about gold are true: 1) Gold returns, over the very long term, are roughly in line with S&P500 returns (but ... we're talking decades, as in plural). 2) in the short term Gold returns are essentially zero. With both the good and bad that comes with: almost no volatility, and when there is volatility, it's sudden large jumps up. The one that isn't well known: 3) Most governments prevented this investment from working when it mattered by (in the US case) outlawing gold. Other governments did different things with similar results. So Gold is a great investment, IF you're willing to wait 20+ years at least, and of course assuming you trust the government (the exact opposite of what most gold bugs will tell you).
    - chiaro 9y ago
      1) is hilariously off base. S&P500 has averaged about 10% nominal return, annual, since 1928. Gold returned a little under 5% nominal over the same period.
      - candiodari 9y ago
        S&P500 has only 10% return if you ignore a number of things a) your pick of the moment. You might be tempted to pick today as a neutral point in time. Of course, it's not. The S&P500 is at a complete all-time-high. It's literally never done this well, ever. Gold is not doing so well. In fact, gold has done quite poorly for about 5 years now, and perhaps a bit better over the last year (despite central bank interventions to keep it down I might add). Comparisons at this time, will of course be skewed towards the S&P returning more. In 2012 Gold would have been the outperforming asset, and trust me on this one: it will be again. When ? Good question. Which will be the best investment for the next 10 years. The asset that's never ever been up this high, or the asset that has systematically kept it's value for 7000 (not a typo) years, but has been going down quite a bit for the last 5 years ? Much more difficult question isn't it ? I think it's quite a safe bet to say that gold will, firstly, have much worse returns than the S&P500 over the next month or two, and much better returns than the S&P500 over the next 2-5 years. When it comes right down to it, it's effectively a bet on government policy. If the FED restarts Yellen's "competitive devaluation" craze of 2011 (which is definitely a possibility), gold will have an amazing performance. Again, not going to happen over the next 2 months. Very likely going to happen within the next 5 years. b) transaction costs from buying and selling when the index gets modified, which are not counted in the index (they are counted in things like SPY, which does indeed systematically underperform the index). c) (closely related to b) the fact that quite a few stocks got thrown out when they either went bankrupt or the stocks dropped enough. This is not reflected in the index, but of course anyone actually invested would get dented in the process, more so than for transaction costs. https://www.investopedia.com/articles/investing/022416/5-famous-companies-dropped-sp-500.asp https://www.investopedia.com/articles/investing/022416/5-fam... The trouble is there is no true answer to how much the S&P500 returned over the past century to an actual investor. One thing's for sure: it would be less than the index, and (especially in the earlier part of the century) significantly so.
- johnwheeler 9y ago
  This is the worst investment thesis ever.
- loeg 9y ago
  This is a cherry-picked example and ignores dividends, which are a huge factor over 43 year periods.
- chiaro 9y ago
  The yield is a pretty big thing to miss. Also gold and stock prices are anti-correlated, with gains in the former chasing weakness in the latter. This makes cherrypicking dates pretty easy to do.
- alejohausner 9y ago
  It's not cherry picked, and the S&P prices have been adjusted for dividends. I'm pretty sure that if you pick two other intervals, both assets will perform equally well. Edit: yes, there is some selection bias in my intervals: 1970s: gold beats SP500 by a mile 1980s: gold stagnates, SP500 soars 1990s: same as 80s 2000s: see 1970s 2010s: so far, SP500 is ahead. Conclusion: you need a VERY long investment horizon to compare these two assets.
- dgant 9y ago
  That's not an investment. There is no value being generated and nothing is growing. It's speculation.
- Spooky23 9y ago
  How about 11/30/12 as compared to 11/30/17? (Down 20%)

I'm no financial advisor, but I'd fire the person who recommended I buy gold as a long term investment.

by akozak 9y ago

I'm no financial advisor, but I'd fire the person who recommended I buy gold as a long term investment.

Actually gold is a very good long term investment. Here are some year-end closing prices: Year gold S&P500 1972: 64 118 2015: 1060 2044 Ratio: 16.5 17.3 True, gold does not have a yield, but it has gone up a lot over the years.

kelnos 9y ago
Cherry-picking two dates doesn't really tell us much. Volatility year-over year would be useful to see, and, as they say, past performance is not an indicator of future earnings. A decision to invest (or not invest) in gold should be based on your current expectation of the future.
- candiodari 9y ago
  Ah come on. We both know that the basic claims about gold are true: 1) Gold returns, over the very long term, are roughly in line with S&P500 returns (but ... we're talking decades, as in plural). 2) in the short term Gold returns are essentially zero. With both the good and bad that comes with: almost no volatility, and when there is volatility, it's sudden large jumps up. The one that isn't well known: 3) Most governments prevented this investment from working when it mattered by (in the US case) outlawing gold. Other governments did different things with similar results. So Gold is a great investment, IF you're willing to wait 20+ years at least, and of course assuming you trust the government (the exact opposite of what most gold bugs will tell you).
  - chiaro 9y ago
    1) is hilariously off base. S&P500 has averaged about 10% nominal return, annual, since 1928. Gold returned a little under 5% nominal over the same period.
    - candiodari 9y ago
      S&P500 has only 10% return if you ignore a number of things a) your pick of the moment. You might be tempted to pick today as a neutral point in time. Of course, it's not. The S&P500 is at a complete all-time-high. It's literally never done this well, ever. Gold is not doing so well. In fact, gold has done quite poorly for about 5 years now, and perhaps a bit better over the last year (despite central bank interventions to keep it down I might add). Comparisons at this time, will of course be skewed towards the S&P returning more. In 2012 Gold would have been the outperforming asset, and trust me on this one: it will be again. When ? Good question. Which will be the best investment for the next 10 years. The asset that's never ever been up this high, or the asset that has systematically kept it's value for 7000 (not a typo) years, but has been going down quite a bit for the last 5 years ? Much more difficult question isn't it ? I think it's quite a safe bet to say that gold will, firstly, have much worse returns than the S&P500 over the next month or two, and much better returns than the S&P500 over the next 2-5 years. When it comes right down to it, it's effectively a bet on government policy. If the FED restarts Yellen's "competitive devaluation" craze of 2011 (which is definitely a possibility), gold will have an amazing performance. Again, not going to happen over the next 2 months. Very likely going to happen within the next 5 years. b) transaction costs from buying and selling when the index gets modified, which are not counted in the index (they are counted in things like SPY, which does indeed systematically underperform the index). c) (closely related to b) the fact that quite a few stocks got thrown out when they either went bankrupt or the stocks dropped enough. This is not reflected in the index, but of course anyone actually invested would get dented in the process, more so than for transaction costs. https://www.investopedia.com/articles/investing/022416/5-famous-companies-dropped-sp-500.asp https://www.investopedia.com/articles/investing/022416/5-fam... The trouble is there is no true answer to how much the S&P500 returned over the past century to an actual investor. One thing's for sure: it would be less than the index, and (especially in the earlier part of the century) significantly so.
johnwheeler 9y ago
This is the worst investment thesis ever.
loeg 9y ago
This is a cherry-picked example and ignores dividends, which are a huge factor over 43 year periods.
chiaro 9y ago
The yield is a pretty big thing to miss. Also gold and stock prices are anti-correlated, with gains in the former chasing weakness in the latter. This makes cherrypicking dates pretty easy to do.
alejohausner 9y ago
It's not cherry picked, and the S&P prices have been adjusted for dividends. I'm pretty sure that if you pick two other intervals, both assets will perform equally well. Edit: yes, there is some selection bias in my intervals: 1970s: gold beats SP500 by a mile 1980s: gold stagnates, SP500 soars 1990s: same as 80s 2000s: see 1970s 2010s: so far, SP500 is ahead. Conclusion: you need a VERY long investment horizon to compare these two assets.
dgant 9y ago
That's not an investment. There is no value being generated and nothing is growing. It's speculation.
Spooky23 9y ago
How about 11/30/12 as compared to 11/30/17? (Down 20%)