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Gold is a Terrible Investment - According to Dave Ramsey

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ModernSurvival:
My dad use to say "opinions are like ass holes, everyone has one and they tend to stink".  This is how I feel about most opinions when presented as absolute fact.  I answered the question today about Dave Ramsey's supposed "strong case" for why gold is a terrible investment.  Why don't we compare it to the Dow Jones and mutual funds tied to it, not with opinion with fact.  

First here are the tools I used as sources for this little project

1.  http://www.usagold.com/reference/prices/history.html  - Historical Gold Prices

2.  http://www.measuringworth.com/calculators/ussave/index.php  - Wealth Calculator that Determines investment value on the DJA among other things.

So using those I said hell I know I WILL GET BURNED by the gold spike in 1978-1982 but so what lets look at investing 10,000 dollars in the following round number years

1970
1980
1990
2000

And say fine 10K into both assets which one was the better play with each of these years as starting points.  That is about 40 years minus what 2.5 months left this year.  Fair game?  I sure don't think I am stacking the deck and I sure could if I cherry picked years.

So
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1970

On 10K invested the DJA would have returned the investor $149,295 a total profit of $139,295
On 10K invested in gold at 37 dollars an ounce the gold would be worth $285,930 today or a profit of $275,930

Results for 1970 as your initial investment Gold thumps the DJA with margin of an additional $136,635

Gold Wins!

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1980

On 10K invested the DJA would have returned the investor $126,764 a total profit of $116,764
On 10K invested in gold at 600 dollars an once the gold would be worth $16,944 today or a profit of $6,944

Results for 1980 as your initial investment The DJA thumps Gold with margin of an additional $109,820

Stocks Win!

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1990

On 10K invested the DJA would have returned the investor $41,962 a total profit of $31,962
On 10K invested in gold at 375 dollars an once the gold would be worth $27,300 today or a profit of $17,300

Results for 1990 as your initial investment The DJA out performs Gold with margin of an additional $14,662

Stocks Win!

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2000

On 10K invested the DJA would have returned the investor $10,479 a total profit of $479
On 10K invested in gold at 275 dollars an once the gold would be worth $37,800 today or a profit of $27,800

Results for 1990 as your initial investment Gold thumps the DJA with margin of an additional $27,321

Gold Wins!

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Thoughts

So is this highly scientific or a professional analysis, no, but isn't it a hell of a lot more honest then Dave Ramsey just claiming "gold is a terrible investment" or on the other side the gold salesman saying you "can never loose with gold"?  What we see is clear on the valuted 10 year scale and the longer 40 year scale gold was a better investment.  We see that in a 20 and 30 year time frame gold was totally blown away by the stock market.  We also see quite clearly that you can do poorly with either and we have seen that the better one does seems to damage the performance of the other.  IE when the market booms gold prices go down as investors chase faster profits and when the economy dies money runs to gold as a safe haven.

In other word when anyone says buy stocks and gold sucks they are advising you to avoid insuring your investments.  They are advocating that you risk 100% of your money in one investment vehicle.  There are also many things being ignored by the above figures.  Golds big spike around 1980 was created by a lot dismay in the economy (as bad as today honestly), the as recent as 1975 lunacy of removing the gold standard from our currency and an attempt that pinnacled in 1982 by the Hunt brothers to corner the silver market.   Remove the 1980 spike and gold is a lot better of a performer if we just looked at 70, 90 and 2000 as investment years.  If you were holding gold in 1980 it was a great time to dump it and buy a 5 year CD with an double digit interest rate that was guaranteed and insured.  

Did gold "slump" during the 80s and 90s?  Yes, did the stock market do the same at different times in the same two decades?  Yes indeed!

What do we learn here as a whole, we learn the market is manipulated and our money has been devalued.  This began in 1913 but with some level of connection to a gold standard didn't go nuts until 1975 under Nixon and his devastation of the last vestiges of the gold standard.  

So should you buy gold at 1050 an ounce, honestly I don't know, perhaps some, perhaps wait for a retraction.  I think a fake recovery is on tap for 2010-2011 and you may see the opportunity to buy at 800ish again and you may not, I really don't know.  What I do know for a fact is that the Fed has printed TRILLIONS of dollars and it has all sucked value from our money.  I know that gold has not gone up enough to compensate for the devaluation yet, the key is will the fed reign in the money when the recovery starts?  Will they pull in enough of it?  Will other nations sit back and let use continue to devalue the world reserve currency and therefore trash their economies or will they respond to this?

Hence this is why I say 5-15% into metals and if you think Gold is high don't do it all at once do it a bit here and there over time.  Buy gold and silver when stocks are way up and buy stocks when they are way down.  This is not "trading" as looser advisers who don't know their ass from a hole in the ground call it as a cop out.  It is basic market timing over a very long term.  It is why I didn't loose my ass in 2008 and why people that listened to TSP in 2008 didn't either even if they bought zero gold.

My point?  When anyone makes an absolute statement research it.  On some levels I love and respect the hell out of Dave Ramsey but the absolute statements that "gold is a terrible investment" and "just buy good funds and hold them" are bullshit and a great way to put the majority of your wealth on a craps table they call the stock market with no "exit strategy".  Haven't we been told that no "exit strategy" is a big ass mistake, haven't we learned that is indeed the case?   You can't create diversity by buying diversified funds, you are still all in stocks.  You can't even do it with gold and stocks or even with just gold, stocks and bonds.  To build a strong set of investments you must build a portfolio of hard assets and paper assets that support your lifestyle and you never risk your lifestyle or your families future to any ONE thing, ever.  

So what is the perfect allocation?  There isn't one, you must decide how to break up and divide and therefore mitigate your risk.  You do that based on your life, you current situation, your future plan and your required cash flow to live the way you want. As you do that never let any talking head be it Dave (I denied the biggest market crash in history) Ramsey , Susie (the clueless one) Orman, Jim (I was wrong for 10 years but have it right this time) Cramer or even Jack (I told you so) Spirko ever box you into any 100% absolutes when it comes to YOUR wealth.

KYdoomer:
Jack

I agree.

However, do you think now is the right time to buy gold?  I actually think we are at the top of a spike.  I think it will come back down to probably 850-900 before it begins the quick rise to probably 1500-1700 middle of next year.  I think gold moves with the value of the dollar but the false recovery as you call it will probably drive it back down a bit.

But yeah all those guys want a quick return with a risky investment.  Gold is wayyyyy safer.

Thoughts?

J

ModernSurvival:
@KYdoomer,  I gave that answer above,  ;)


--- Quote from: ModernSurvival on October 14, 2009, 11:20:44 AM ---
So should you buy gold at 1050 an ounce, honestly I don't know, perhaps some, perhaps wait for a retraction.  I think a fake recovery is on tap for 2010-2011 and you may see the opportunity to buy at 800ish again and you may not, I really don't know.  What I do know for a fact is that the Fed has printed TRILLIONS of dollars and it has all sucked value from our money.  I know that gold has not gone up enough to compensate for the devaluation yet, the key is will the fed reign in the money when the recovery starts?  Will they pull in enough of it?  Will other nations sit back and let use continue to devalue the world reserve currency and therefore trash their economies or will they respond to this?


--- End quote ---

I can tell you I am NOT buying gold at the moment I am buying about 100 a month in silver as I see it as a safer play.  My gut is you and I are correct on gold short term.  I am not sure so I leave it open to others to allocate their investments as they see fit.  I am sitting on about 6 ounces I paid under 500 dollars for and I am not selling it.  So there is both my opinion and my actions.

KYdoomer:
Sorry, somehow I missed that paragraph. 

I agree with you about silver.  When you look at how it kept check with gold for so long.  Gold is starting to pull away which either means gold comes back down or silver goes up or a combination of both.

J

Cooter Brown:

--- Quote from: KYdoomer on October 14, 2009, 12:08:30 PM ---I think it will come back down to probably 850-900 before it begins the quick rise to probably 1500-1700 middle of next year.  I think gold moves with the value of the dollar but the false recovery as you call it will probably drive it back down a bit.

--- End quote ---

I agree.

However, Gold is a different animal than almost any other investment vehicle, and especially stocks. I find it slightly disconcerting that Gold continues at record highs, while the market and many of the talking heads are indicating that the "correction" is over. What are the hard-core gold bugs thinking? Is this a sideways indicator of inflation? These are indeed strange times with mixed signals.

I'm with Jack on the silver; I think there's more upside, less risk, more versatility and, frankly, gold is for the big dogs who won't give a hoot about a $100-$150 an ounce correction in the short term.

YMMV

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