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People have claimed gold was a hedge against inflation and financial asset bubbles for a long time. Sometimes it is even true. Of course gold has solidly underp

People have claimed gold was a hedge against inflation and financial asset bubbles for a long time. Sometimes it is even true. Of course gold has solidly underperformed the market for the last ten years (S&P 500 up hundreds of percent, gold flat). The fact is there is not an investment that exist which will both perform as well as the stock market and be anti-correlated to the stock market during downturns. Imo, this is not something to worry about too too much. If there is a big stock market crash, then you just hold on to your stock throughout. You'll get "poorer", but so will everyone else, since they are all invested the same as you are. For a member of the investor class, whose true needs are likely to be met under any foreseeable circumstance short of complete social collapse, the most important thing isn't maintaining a certain absolute level of wealth. It's maintaining a certain relative level of wealth. And the main way to do that is to avoid consumptive activities that significantly drain your capital at the bottom of a downturn.

tmountain 5y ago
This is financial wisdom at its finest. Cooler heads prevail, and the only real way to lose historically is to panic sell. This too shall pass… HOLD
- baq 5y ago
  Tell that to folks who bought Nikkei 30 years ago.
  - asdfasgasdgasdg 5y ago
    If an economy is not growing then the value of productive capital in that economy will not grow either. That's the root of the problem in Japan, and it has little to do with temporary downturns like a stock bubble popping. To be clear, I don't assert that maintaining relative wealth is the sole concern of an investor. There are others. But I think it's the most important aspect of sudden downturns provided that you still believe in the long term real growth of the productive capacity of the economy you're invested in. Also, if you don't believe in that, then the only practical alternative I'm aware of is to invest in an economy you believe in more, or to invest in a slice of the overall economy you think is more likely to grow. Failing that, there simply aren't any good options.
    - Jensson 5y ago
      Are you saying that USA's economic productivity tripled the past 10 years? Because the stock market tripled. How many decades do you think it takes for USA to triple its productivity for real, so that it catches up to the stock market? That is how many decades the crash could set you back if this really is such a bubble.
      - asdfasgasdgasdg 5y ago
        > Are you saying that USA's economic productivity tripled the past 10 years? No, that's obviously false. How could I believe that? I am observing that Japan's economy has had very little real growth over the 30 year period referenced by my parent commenter, and that that is the primary problem for investors over there. (The real GDP of the United States as measured by the Federal Reserve bank increased by 33% from 2010 to 2020 immediately before the pandemic, see: https://fred.stlouisfed.org/series/GDPC1 https://fred.stlouisfed.org/series/GDPC1.) > How many decades do you think it takes for USA to triple its productivity for real, so that it catches up to the stock market? That is how many decades the crash could set you back if this really is such a bubble. I think there are a bunch of assumptions here about how asset prices track the growth of GDP that may not be correct. But, the way I model it, it doesn't really matter if my absolute assets recover to a particular nominal dollar amount after a crash. What I'm mainly concerned about is that my share of the productive capacity of the US economy doesn't decrease, and that that economy as a whole (particularly the portion represented by publicly traded companies) continues to grow. As long as those two conditions are satisfied, I'm not terribly concerned about the dollar amount assigned to my portfolio. What I'm chiefly concerned about is the amount of real consumption that my investments and labor entitle me to. And I believe that the best way to think about my investments in this context is the fraction of real production in the country that they represent, times the total amount of real production.
        Jensson 5y ago
        > What I'm mainly concerned about is that my share of the productive capital in the US economy doesn't decrease But that can still result in negative returns on your investments, it protects you from losing everything but it doesn't protect you from losing a lot.
  - throw0101a 5y ago
    > Tell that to folks who bought Nikkei 30 years ago. Or the folks who held S&P 500 in the 2000s. But the lesson is simple: diversify. A 60/40 Japan equities/bonds portfolio would have ben fine: * https://gfmasset.com/2020/01/60-40-has-worked-well-even-in-japan/ https://gfmasset.com/2020/01/60-40-has-worked-well-even-in-j... Same as for the S&P 500: > Yes, the data does show that 2000-2009 was a lost decade for the S&P 500. Passive investing has been unfairly attacked in response to this data, however, because of a misperception of what a proper passive investing strategy is. > Passive investing does not mean one should buy-and-forget, but rather that one should limit trading to periodic portfolio rebalancing. Those who proactively rebalanced their portfolios actually profited, even when investing in funds that tracked that S&P 500. * https://www.forbes.com/sites/investor/2010/12/17/the-lost-decade-was-a-golden-age-if-you-rebalanced/ https://www.forbes.com/sites/investor/2010/12/17/the-lost-de...
    - gruez 5y ago
      >A 60/40 Japan equities/bonds portfolio would have ben fine: these days 60/40 is considered pretty conservative. in this environment holding to bonds means you're losing out to inflation.
      - throw0101a 5y ago
        1. Bonds generally aren't there for returns, but to manage risk. When rebalancing (±5%) they end up being a form of 'dry powder' to buy equities during down turns. 2. While they may dampen returns (but also dips), one has to examine how much risk is actually needed to meet financial goals. Sure, more money is generally better, but not necessarily at the cost of other factors.
- Justin_K 5y ago
  For some people, like retirees, it is not possible to hold. They will sell to limit losses and still allow themselves to retire. Give the great resignation, we just added millions of retirees who will sell to maintain their savings.
  - tmountain 5y ago
    You make a good point. Nobody wants to retire during a recession, and the point of any investment is to draw upon it eventually. Waiting around for the economy to improve so you can retire is a nonstarter for a lot of folks.
  - alsobrsp 5y ago
    Along these lines, my folks took a bath in 2008. They were using their stock holdings for cash flow. When the market tanked they had to sell more for the same cash flow. Historically, this made sense considering their class of holdings. 2008 was just a shot show.
throw0101a 5y ago
> People have claimed gold was a hedge against inflation and financial asset bubbles for a long time. Sometimes it is even true. It's hardly ever been true. Erb and Harvey wrote two papers on this and found gold isn't useful: * https://www.nber.org/papers/w18706 https://www.nber.org/papers/w18706 * https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2639284 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2639284 Harvey's main claim to fame is his observation of the yield curve inversion occurrence before US recessions. > If there is a big stock market crash, then you just hold on to your stock throughout. Good investing fable that runs the numbers: > Meet Bob. > Bob is the world’s worst market timer. > What follows is Bob’s tale of terrible timing of his stock purchases. * https://awealthofcommonsense.com/2014/02/worlds-worst-market-timer/ https://awealthofcommonsense.com/2014/02/worlds-worst-market... In the accumulation phase of your financial journey there is only one rule: * https://ofdollarsanddata.com/just-keep-buying/ https://ofdollarsanddata.com/just-keep-buying/

tmountain 5y ago

This is financial wisdom at its finest. Cooler heads prevail, and the only real way to lose historically is to panic sell. This too shall pass… HOLD

baq 5y ago
Tell that to folks who bought Nikkei 30 years ago.
- asdfasgasdgasdg 5y ago
  If an economy is not growing then the value of productive capital in that economy will not grow either. That's the root of the problem in Japan, and it has little to do with temporary downturns like a stock bubble popping. To be clear, I don't assert that maintaining relative wealth is the sole concern of an investor. There are others. But I think it's the most important aspect of sudden downturns provided that you still believe in the long term real growth of the productive capacity of the economy you're invested in. Also, if you don't believe in that, then the only practical alternative I'm aware of is to invest in an economy you believe in more, or to invest in a slice of the overall economy you think is more likely to grow. Failing that, there simply aren't any good options.
  - Jensson 5y ago
    Are you saying that USA's economic productivity tripled the past 10 years? Because the stock market tripled. How many decades do you think it takes for USA to triple its productivity for real, so that it catches up to the stock market? That is how many decades the crash could set you back if this really is such a bubble.
    - asdfasgasdgasdg 5y ago
      > Are you saying that USA's economic productivity tripled the past 10 years? No, that's obviously false. How could I believe that? I am observing that Japan's economy has had very little real growth over the 30 year period referenced by my parent commenter, and that that is the primary problem for investors over there. (The real GDP of the United States as measured by the Federal Reserve bank increased by 33% from 2010 to 2020 immediately before the pandemic, see: https://fred.stlouisfed.org/series/GDPC1 https://fred.stlouisfed.org/series/GDPC1.) > How many decades do you think it takes for USA to triple its productivity for real, so that it catches up to the stock market? That is how many decades the crash could set you back if this really is such a bubble. I think there are a bunch of assumptions here about how asset prices track the growth of GDP that may not be correct. But, the way I model it, it doesn't really matter if my absolute assets recover to a particular nominal dollar amount after a crash. What I'm mainly concerned about is that my share of the productive capacity of the US economy doesn't decrease, and that that economy as a whole (particularly the portion represented by publicly traded companies) continues to grow. As long as those two conditions are satisfied, I'm not terribly concerned about the dollar amount assigned to my portfolio. What I'm chiefly concerned about is the amount of real consumption that my investments and labor entitle me to. And I believe that the best way to think about my investments in this context is the fraction of real production in the country that they represent, times the total amount of real production.
      - Jensson 5y ago
        > What I'm mainly concerned about is that my share of the productive capital in the US economy doesn't decrease But that can still result in negative returns on your investments, it protects you from losing everything but it doesn't protect you from losing a lot.
- throw0101a 5y ago
  > Tell that to folks who bought Nikkei 30 years ago. Or the folks who held S&P 500 in the 2000s. But the lesson is simple: diversify. A 60/40 Japan equities/bonds portfolio would have ben fine: * https://gfmasset.com/2020/01/60-40-has-worked-well-even-in-japan/ https://gfmasset.com/2020/01/60-40-has-worked-well-even-in-j... Same as for the S&P 500: > Yes, the data does show that 2000-2009 was a lost decade for the S&P 500. Passive investing has been unfairly attacked in response to this data, however, because of a misperception of what a proper passive investing strategy is. > Passive investing does not mean one should buy-and-forget, but rather that one should limit trading to periodic portfolio rebalancing. Those who proactively rebalanced their portfolios actually profited, even when investing in funds that tracked that S&P 500. * https://www.forbes.com/sites/investor/2010/12/17/the-lost-decade-was-a-golden-age-if-you-rebalanced/ https://www.forbes.com/sites/investor/2010/12/17/the-lost-de...
  - gruez 5y ago
    >A 60/40 Japan equities/bonds portfolio would have ben fine: these days 60/40 is considered pretty conservative. in this environment holding to bonds means you're losing out to inflation.
    - throw0101a 5y ago
      1. Bonds generally aren't there for returns, but to manage risk. When rebalancing (±5%) they end up being a form of 'dry powder' to buy equities during down turns. 2. While they may dampen returns (but also dips), one has to examine how much risk is actually needed to meet financial goals. Sure, more money is generally better, but not necessarily at the cost of other factors.
Justin_K 5y ago
For some people, like retirees, it is not possible to hold. They will sell to limit losses and still allow themselves to retire. Give the great resignation, we just added millions of retirees who will sell to maintain their savings.
- tmountain 5y ago
  You make a good point. Nobody wants to retire during a recession, and the point of any investment is to draw upon it eventually. Waiting around for the economy to improve so you can retire is a nonstarter for a lot of folks.
- alsobrsp 5y ago
  Along these lines, my folks took a bath in 2008. They were using their stock holdings for cash flow. When the market tanked they had to sell more for the same cash flow. Historically, this made sense considering their class of holdings. 2008 was just a shot show.

throw0101a 5y ago

> People have claimed gold was a hedge against inflation and financial asset bubbles for a long time. Sometimes it is even true. It's hardly ever been true. Erb and Harvey wrote two papers on this and found gold isn't useful: * https://www.nber.org/papers/w18706 https://www.nber.org/papers/w18706 * https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2639284 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2639284 Harvey's main claim to fame is his observation of the yield curve inversion occurrence before US recessions. > If there is a big stock market crash, then you just hold on to your stock throughout. Good investing fable that runs the numbers: > Meet Bob. > Bob is the world’s worst market timer. > What follows is Bob’s tale of terrible timing of his stock purchases. * https://awealthofcommonsense.com/2014/02/worlds-worst-market-timer/ https://awealthofcommonsense.com/2014/02/worlds-worst-market... In the accumulation phase of your financial journey there is only one rule: * https://ofdollarsanddata.com/just-keep-buying/ https://ofdollarsanddata.com/just-keep-buying/