Myth: If you hold your assets in gold, you can expect your purchasing power in gold to be *roughly* steady.
Grandpa says I believe my experience proves otherwise:
I bought a “lot of gold” or $100,000 worth in 1980.
The price then was around $750 per oz.
Had I sold immediately, I would have lost a 4% commission on the buy and 4% commission on the sell.
In many countries, a VAT or sales tax of another 5-6% would reduce the purchasing of my gold further — at a stroke.
This loss of 8% is a lot higher than the commissions on other things that go up and down like options, stocks or bonds.
IF YOU DON’T PAY YOUR CAPITAL GAINS TAX YOU ARE A CRIMINAL!
The other thing to figure is that in places like the USA, there is a substantial income or cap-gains tax to pay on any paper money gains on gold — or almost anything else except your personal residence!
In fact the only place where there is no tax on gold profits is in a tax haven. — But only for legal residents of that tax haven.
Getting back to my $100,000 worth of 1980 gold:
Within months, my gold promptly dropped in terms of bid price by 75% or more like 85% allowing for commissions.
Would you call 30 years “long term?”
For the next 30 years, the value of my $100,000 worth of gold in terms of my purchasing power dropped by over 98%.
When more recently, the nominal price finally equaled the $750 I paid, a gorgeous beachfront mansion I could have bought for my $100,000 1980 dollars, was $15,000,000. Yes, $15 MILLION.
Got it?
In terms of the dollars, I started with,
The value of my gold in terms of purchasing power for a waterfront home in my neighborhood gold, had dropped by 98%.
Now in 2011 my gold is finally worth –in terms of dollars–double what I paid for it– or a bit over $200,000. But the purchasing power of that gold is less than what $100,000 was worth back in 1980.
TIMING?
Yes, I got in at the wrong time. But don’t we all (well dear reader, maybe you are an exception!) tend to buy at peaks when everybody is optimistic?
And then, too don’t we all too often, sell our commodities or securities when optimism fades, and they are at or near their nadir.
The value of my gold was far from steady in terms of money or purchasing power!
Putting it another way, today, 40 years later my $100,000 dream-house is now (after the real estate market crash) worth “only” $10+ Million.
My gold after 30 years had finally regained it’s nominal value but after inflation, my purchasing power is still only 2% of what it had been.
Obviously, I would have been far better off buying that dream- house in 1980 for $100,000 than having spent $100,000 on gold.
DO OTHER THINGS HOLD THEIR VALUE
What is better than Gold?
After 2007, my dream house ‘s value dropped from $15 million to $10 million.
If I had a mortgage, I would be way under water.
We all should know that real estate prices just like gold can vary quite a bit.
How about short term Sovereign Bonds, like USA Treasuries?
In my opinion they are just like holding cash —a guaranteed way to lose your purchasing power.
One big difference is that real estate and many other investments can throw off income & provide you with a rent-free place to live. Gold investments yield no dividends or interest, but may incur storage and insurance charges.
I don’t call a 98% decline in the purchasing power of gold
“Roughly steady.”
Do you? Does Anyone?
Gold is not “real money” but * just another commodity* that in terms of dollars is for the moment, going up in value.
For how long, nobody knows.
In terms of Swiss Francs the gold price hasn’t changed nearly as much as it has in dollars.
If you have great timing you can leverage a long or short position in any commodity including silver, gold or coffee.
You might make a fortune.
Unfortunately, 90% of us, don’t have any talent for great timing.
And so Grandpa says,
“Passive Investments are for Suckers!”
See my article of that title!
For us, the answer is having our own business and with our own efforts and work producing a product or service that gives us a good income.
Some people rant on and on about the worthlessness of “fiat money.”
I regard money as a terrible “investment,” but you do need some of it!
What’s money? Legally it is “legal tender” that is the only thing that can be used to pay your utilities and taxes with. That gives ”Fiat printed paper money” both value and the necessity to own at least enough to pay your bills (and for non-PTs) enough to pay taxes.
Comments, Corrections, additions welcome. Please post them below:
NOBODY EVER GOT RICH ON PASSIVE INVESTMENTS.
Can we agree on that?
Famous investors: Soros, Buffet, and long before them, Bernard Baruch, made serious money speculating on stocks, currencies, gold, etc., but they were anything but passive. They did a lot of work, looking for underpriced stuff. During their successful periods, they sold out at the first sign of trouble. More importantly, they gambled mostly with other people’s money and they took profits but didn’t usually share losses.
Want to make money insecurities? Become a trader or a Goldman Sachs partner (a wheeler-dealer), not a Goldman Sachs passive investor. Muammar Gaddafi recently gave Goldman several billion Euros to manage. Goldman lost it all in a few months.
Need ideas on PT type businesses you can start with little or no money? Read INSIDER SECRETS
Post your comments, thoughts, related personal experiences, corrections, or questions below.
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