If your goal in retirement is to have an increasing income in order to offset ever increasing prices, gold is one of the worst possible investments you could make. In fact, gold is the second worst major investment class an investor could buy if the goal is to beat inflation over a 5, 10, 15, or 20 year time period. Only about 40% of the time has gold beaten inflation over either a 5 year or 10 year time period and at 15-20 years it is about a coin toss; not exactly great odds. Commodities are actually the very worst over longer time periods with gold being bottom of the barrel over shorter time frames, according to recent research published by Goldman Sachs.
The last time inflation was sky high and peaking like today was in 1980. Since then, gold has failed to outpace inflation and has gone from being worth roughly $800 an ounce to a little over $1,900 an ounce. Had one invested $100,000 in gold and not paid any transaction costs (which can be obscenely high) that gold would be worth about $225,000 today. The problem is that something that cost $100,000 in 1980 now costs over $390,000 today due to inflation. So although the price of gold went up, it’d only be able to buy about 57% today of what it could in 1980.
So the long term track record after we’ve had high inflation isn’t great, but what about the last couple of years that featured the highest levels of inflation in four decades? In the last 3 years, gold has actually lost value. In fact, it’s still worth less than when it hit its peak almost 12 years ago in August of 2011. While the prices of most goods and services have gone up, many dramatically, over the last decade plus, the price of gold has gone down. Even worse is silver, which has lost over half its value during this time period.
Not only have these precious metals had very bad returns and done a very poor job of keeping up with inflation, they are also quite volatile; even more volatile than the stock market. Think gold is safe and secure? Think again. Research done by State Street Securities (who run the world’s largest gold fund) shows that over the last 30 years the price of gold has fluctuated in value nearly 8% more during the average year than the stock market.
Speaking of the stock market, the Dow Jones in 1980 was, like gold, also worth about 800. Today? Over 34,000. Had one invested $100,000 in the Dow in 1980 and reinvested all dividends, they’d have over $11.2 million today. So while gold can only buy 57% of what it could 43 years ago, the Dow can buy over 28 times more than what it could then!
US stocks are the only major investment to beat inflation over every single time period that the average retirement lasts. The ONLY one. There is no time period where any other has beaten inflation more frequently. Why? Because businesses can do things a piece of metal cannot, like create new products/services or more efficient ways to produce things and they also have the ability to raise prices. You may have heard that ‘greedy companies are the reason prices are high right now.’ Assuming that is true, wouldn’t it be nice to be the one making all those profits? If so, consider owning stocks, because stocks are ownership in a company!
Who do you know that has gotten rich off of putting a substantial amount in gold? Anyone? Who do you know or have heard of that has done so with being a company owner? Warren Buffet? Bill Gates? Jeff Bezos? Do any of those names ring a bell? Guess what? All of them became billionaires based on the values of stock they owned.
During times of uncertainty it can be easy to get drawn into unscrupulous advertising designed to prey on fear. Gold is a completely unregulated market and as such is one where this type of advertising runs rampant along with other predatory behavior. Metals.com, for instance, has seen so many lawsuits against it for selling precious metals for on average 148% more than their actual worth that they are now in receivership. Don’t think they are the only ones out there that are engaged in this kind of business practice.
Rather than listening to deceptive advertising to purchase an asset at a huge markup (like gold or silver) that is more volatile than stocks and has done a very poor job of keeping up with inflation, consider speaking with a fiduciary advisor. A fiduciary advisor must by law give you advice that is in your best interest and is usually compensated in a way so that when your assets grow and beat inflation they get paid more and when they don’t, they get paid less. This is the type of compensation structure we use as it puts us financially on the same side of the table as our clients. We can purchase gold in client accounts just as easily as stocks, real estate, or any of the other assets shown in the above chart. We typically don’t buy gold in client accounts, though, as we’re well aware of the data that chart shows and want both our clients and us to prosper financially and beat inflation.
Material discussed is meant for general/informational purposes and is not intended to be used as the sole basis for any financial decisions, nor be construed as advice to meet your particular needs. Please consult a financial professional for further information. Investing in securities involves risk and profit cannot be guaranteed.
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