You are mostly making the same points I am. It is best to be in Asian stocks. But one reason stocks can do well if the economy plummets, is the stocks sometimes rely so much on overseas income. Two thirds of the FTSE income comes from overseas. I wouldn’t be surprised if the USA was similarly international and that could explain part of the puzzle of why the market is doing so well when the economy is doing badly.
But it is still doubtful that a basket of global equities would be outperformed by gold.
John, you refer to Murphy who says economics won’t make you rich, but may prevent you from going broke. Herbert Gintis makes exactly the same point in his favourable review of Malkiel’s Elements of Investing:
"Malkiel’s Random Walk Down Wall Street is one of the best finance books ever written. It is still a pleasure to read. This book is more nuts-and-bolts, but the advice is absolutely first rate. Here are their four main points:
Save regularly and start early.
Use company- and government-sponsored retirement plans to supercharge your savings and minimize your taxes.
Diversify broadly over different securities with low-cost “total market” index funds and different asset types.
Rebalance annually to the asset mix that’s right for you.
Stay the course and ignore market fluctuations; they are likely to lead to serious and costly investing mistakes. Focus on the long term.
I think point 4 is way overstated, however. I would rebalance every ten years, or maybe even twenty years. Rebalancing is costly.
When you buy index mutuals, never pay more than 1/5 of one percent in overhead per year. If you buy international mutuals, you will have to violate this rule, however.
Don’t buy only index stocks. Also index bond funds.
Anyone who tells you he can beat the market without being an expert is a liar or a fool. Even an expert can only beat the market by a tiny bit with “inside information” and an understanding of market dynamics.
Malkiel and Ellis tell it all. Give this book to your parents if you want to inherit in your old age, and to your children if you want them not living with you in their middle-fourties"
Successful investing/trading/speculating is a lonely endeavor. Conforming to accepted “wisdom” and seeking a pat on the back from the herd (or anyone else, for that matter) is not a part of it. Getting to this state is not easy. An essential passion about markets drives to a lot of work and study, which lead to the most important parts: confidence in your own judgment alongside a humility to accept being wrong – but the journey is well worth taking. The maxim: “Those who know, do – those who don’t, teach” is especially relevant in this realm.
So don’t ask to be taught, especially not on an online forum.
Please show me someone who advocated investing most or all directly in precious metals.
**
Bingo. You’re not offering anything of the sort the OP was asking for. You’re more or less regurgitating the same thing anyone could get by turning on CNBC. And you obviously don’t have a very good understanding. I mean you looked at the numbers in that article and said “that’s a better return from owning gold”. And you spent a great deal of this “i think equities will do well” post doing essentially the same thing. I spent multiple paragraphs in the very second post on this thread explaining how gold almost never earns a “return” and almost no one buys it for that purpose. You continuously talk as if gold is an investment when I spent the better part of that post explaining how that’s by and large exactly not what it is.
Trust me…Based on everything you’ve said I do not doubt that you got a mainstream economics education as well as a typical investment education. You are, after all, offering nothing more than “the default advice”. And exactly how many people lost their life savings in the last 3 years doing that, again?
I have no idea why you felt the need to make that last post of elementary grade generalized investment “advice”. I thought it was obvious the OP was looking for a little more than the Dave Ramsey refrain. Again, if he was looking for the default “save early, and get yourself in some good growth stock mutual funds” tune, he could easily turn on the financial news or a radio. (And personally, if someone needs to be told that “hey, it might be a good idea to invest in your company 401k at least as much as they will match”…I would say they’re gonna need a lot more than a book if they hope to not end up wearing a “Welcome to Wal-Mart” button on a bright blue vest.
Saving is great but if you’re starting from scratch and you don’t earn a million-dollar salary, you’re never going to build enough capital to start your own business. You would have to get VC support for that. While that won’t stop you from nickel-and-dime investing, it’s an important point that is often overlooked, IMO.
Yikes. Stay out of 401(k)s and IRAs, those trillions are a fatted calf and the cash hungry Federal government is salivating over them. The tax-deferral is just a lure, IMO. I don’t know how much longer they’re going to let the program run before they nationalize the assets but nationalization is inevitable.
This is only good advice when stocks are in an inflationary phase relative to commodities or other inflation shelters. For the last two years, your money would have been way better off in gold, oil or silver than in the stock market because stock investors have been fleeing inflation and other risks into the safety of commodities.
Index funds are obviously better than managed mutual funds but neither one is very good at all. Both are “blind investment” into “the market” which I think is a serious error. Speculation is only profitable in one of two ways. The first is blind luck. If you buy a stock and it goes stratospheric, you got lucky and wealthy. But that’s not what professional speculators are doing. They make money the second way which is when you buy a stock because you have good reason to believe it’s going to go up. The lucky blind speculator will eventually go bankrupt if he doesn’t stop blindly buying stocks (buying mutual funds, whole-market or even market sectors are all forms of “blind investment” in my book).
The idea of outsourcing your speculation to professional speculators doesn’t make much sense to me. Speculation works because people don’t put their own money on the line lightly. Professional speculators who manage other people’s money are not as careful with the money they manage as they are with their own money, no matter how hard they try to be. It’s always going to be worth it to take a risk with someone else’s money that you would never take with your own. If you lose a few percent, your clients won’t be happy but then nobody else is offering anything better. However, if you make a large gain, you will get publicity and more customers.
You should be rebalancing constantly. Anywhere you put your money, you have to follow the news daily. If you buy gold, you better read every scrap of information about gold and anything that might affect gold that you can get your hands on. Same goes for oil, ag, any stocks you hold, real estate, you name it. That’s the definition of “personal responsibility.” You’re responsible for keeping track of and taking care of your own stuff. No one else will do it for you, even if they give you a shiny brochure full of promises that they’ll “take care of your money for you.”
Horrible advice. Do not ignore the wider market. When there is a bear market coming, you run. Run as fast as you can! There is no such thing as “paper losses” just missed opportunities. Let’s say you hold a staid American corporation in 2007 that is supposed to be a “value investment”, let’s say Pfizer which was trading around $25 then. The financial crisis begins and, instead of fleeing the market, you “hold for value.” Pfizer takes a huge dip down to $12.72 but has now “recovered” to $20 - in 2011 dollars, which are significantly less valuable than 2007 dollars. Let’s say in another two years your stocks will ‘fully recover’ to $30 where they will once again be as valuable in inflation-adjusted terms as your original investment. The first thing to note is that you haven’t really made any money, you just haven’t lost money to inflation. But the second thing to note is that if you had cashed out half way down, say at $20, and then bought back in at $12.72, you still could have actually made some money and when the stock gets back to $30, you’ll actually have something to show for your effort rather than just inflation neutrality. If you know for a fact Pfizer isn’t going bankrupt and will weather the financial crisis with its market intact, you might be right to own Pfizer but it doesn’t make sense to keep your money invested anywhere in the stock market when the whole thing is going down at once and you can see it about to happen.
The whole thing is that people are lazy and greedy. They want a magic cure. They want an investment that “just pays out without worries” - hell, they’ll even settle for a much more modest growth rate so long as they don’t have to worry about the details. But the fact is there is no such thing, just a whole lot of snake-oil salesmen promising they are selling it. Your capital is at risk 100% of the time no matter what you have it in (even cash, even gold, even real estate, there are no safe-havens) and that is the sorrow that comes with money. But if you do your homework and learn to buy and sell at a profit, you can escape the workaday life of constantly selling your time and energy to someone else in order to make a living… that is what capitalism is, that is what the “leisure class” has that others envy. But nothing in life is free. When you have enough capital that you can earn a living through buying and selling (speculation), you also have enough capital that you must constantly tend to it and keep track of it and avoid losing it, which is a lot of work in itself.
“You are, after all, offering nothing more than “the default advice”. And exactly how many people lost their life savings in the last 3 years doing that, again?”
Nobody lost their savings in the last 3 years by buying the index. The US and UK indices both lost about half their value, then bounced back to about the same level over the course of 3 years. OK a zero or say at worst small nominal loss in a period of worse than normal inflation is not good, but it’s not disastrous, especially for most of the youngsters who want touch their investments for another few decades.
Who lost their savings? If they really did that badly they were in derivatives or they were heavily weighted towards bad firms. This is the peril of not investing in indices, but stock picking. Perhaps you are referring to people who were about to retire, but found that their pension fund (if they had a defined contribution pension) had lost a lot of value. If they were in really bad managed funds, they may still be a lot lower. If the fund managers waited until the markets hit the bottom, then sold, yes you’d could have halved your holdings in 3 years. But no such problems if you had an index fund.
I’ll try to explain why it is important to make elementary advice. This advice is well-known but it is important for the advisory and activist investment management industry to obscure this in order to get as many clients as possible to pay for things they do not need. So this is the elementary mainstream advice in the sense that it is what the theory and evidence suggests, but it is not the advice which is most trumpeted in investment adverts. I very much doubt CNBC would have investment analysts or advisors or fund managers saying you can get a cheap passively invested portfolio. They’re more likely to say it’s very important to have the right balance, and we only charge so much, but it’s worth it because we have so much experience and expertise.
I do realise gold is not an investment and I thought you were only arguing with me because you did not. When I realised you did not think gold was an investment I was puzzled that you keep trying to be so rude about me. I’ll go and check the forums for people who said gold is an investment.
Your age should make no difference except that you might be in a position to endure more privation before marriage and children, hence, you may have an opportunity to build capital before you “start life.” I don’t buy into the “time horizon” thing anymore, it just doesn’t make sense. It’s an implicit denial of uncertainty. What investment recommendations would you have made to the average German citizen in 1913? Would it have mattered whether their time horizon was 10 years, 20 years or 40 years? Would any of your predictions about the “long-run” trend of the market have mattered once war broke out? We have not reached the End of History. I find it laughable that just 50 years since the close of the greatest social cataclysm in human history (the global wars of the 20th century) some moron has declared that we have reached the End of History.
There is no long-term stability and no reason to suppose there will be no global cataclysmic upheaval in the form of drought, famine, war or something else. Renowned investor Jim Rogers is all but predicting famine in the coming decades and his reasoning is inescapable. I wonder how your stock picks will do when formerly middle class people are starving in the streets of what are today First World countries?
As far as I can see John didn’t really disagree with me, except that I didn’t point out gold was not an investment. Well I didn’t do that because I thought so many people on here had already taken for granted that gold was a great investment. And so I thought I’d be more likely dismissed if I pointed that out, and so instead I’d simply point out that if treated like an investment, it was inferior to equities, which are basically best. From there I argued that unless you have close to six figures time spent investing would be better spent working. The fees you incur are higher as a proportion so it is even harder to beat an underlying benchmark. Abstracting from these beating the index is hard (to say that is misleading in that one might infer that chances are better if one tries harder, which probably isn’t true - if you end up trading more you have even less chance due to the fees). So I said it is best to invest in funds. Few funds will outperform an index, so you could do a lot worse than to pick an index. Personally I have had a lot of success in a fund which has outperformed it’s benchmark consistently. I don’t really know what did which others didn’t. But once a fund manager has established such a successful record it seems reasonable to believe he may be able to maintain it (obviously this cannot be relied upon, but you expect he is better than the average).
And now we have Clayton saying gold is an investment. Also earlier in the thread In response to the question of whether gold or silver were a good investment, Smiling Dave wrote: “they are good because they retain their value in times of inflation and low interest rates, because people want gold exactly then.” Implying that gold is a good investment.
sonofliberty75 (Seeking investment advice) starts a thread calling seeking investment advice: “I do currently own some gold and silver, but I am wanting to get into some other investments as well”
If you realize gold is generally not an investment why the hell do you keep comparing it to equities and saying stuff like “much better return than gold”?
I’m not sure why you would bother with that. I asked you to show me someone who advocated investing most or all directly in precious metals.
You both need to go read the second post in this thread.
John, in reading Clayton’s posts do you now see what I’m up against, and why I was posting the basics of investing? There are several vehicles for saving in the UK and US. I only know the terms 401k and IRA - I don’t know the numbers associated with, but I assume they work on a similar basis to UK arrangements. And here is Clayton saying: “Yikes. Stay out of 401(k)s and IRAs, those trillions are a fatted calf and the cash hungry Federal government is salivating over them. The tax-deferral is just a lure, IMO. I don’t know how much longer they’re going to let the program run before they nationalize the assets but rationalization is inevitable.” This is most unlikely. If there were a really big radical left-wing party (I think maybe Italy and France have parties like this, but never in the US) this may be plausible, but both parties received the majority of their funding from big business, and the politicians themselves have lots of money tied up in these investment vehicles. Are they really likely to let their pensions be nationalised like that?
“And personally, if someone needs to be told that “hey, it might be a good idea to invest in your company 401k at least as much as they will match”…I would say they’re gonna need a lot more than a book if they hope to not end up wearing a “Welcome to Wal-Mart” button on a bright blue vest.” I know it’s ridiculous but plenty of successful people do not take advantage of these things. There are a few references to this sort of behaviour in Nudge by Thaler and Sunstein, and Animal Spirits by Akerlof and Shiller. Alternatively you will probably here a bit more about these things if you take an advanced microeconomics class (it may even have filtered down to intermediate level by now). A large percentage of people do not invest in pensions if they have to make a choice. They lose matching contributions, but still they put it off.
John: “If you realize gold is generally not an investment why the hell do you keep comparing it to equities and saying stuff like “much better return than gold”?”
“I asked you to show me someone who advocated investing most or all directly in precious metals.” I couldn’t find the post I was looking for (from more than a month ago). Please forgive me. I was replying to all these people who implicitly mentioned gold as an investment. I wasn’t concerned with whether or not it was an investment, but simply that they should focus on equities instead.
two examples:
In response to the question of whether gold or silver were a good investment, Smiling Dave wrote: “they are good because they retain their value in times of inflation and low interest rates, because people want gold exactly then.”
sonofliberty75 (Seeking investment advice) starts a thread calling seeking investment advice: “I do currently own
some gold and silver, but I am wanting to get into some other investments as well”
What constructive differences in investment analysis or economics do you have which differs to what I have said? I don’t see any areas of disagreement, but perhaps you have something interesting to say. Why don’t you add something constructive to the debate?
Anything is possible in an emergency. Social Security/Medicare/other Federal entitlements are necessarily going to create an emergency. Tax rates can’t go much higher without total loss of popular support of the government (either party), investors are spooked on US bonds, leaving only the Fed which is already flooding the system with dollars (bailouts, TARP, QE1, QE2, etc.) As Marc Faber points out, the US government is out of options, they have only one course of action: print, print, print. This is why commodities are a sure investment for the present.
They can write the rules however needed to make sure they can loophole themselves and their buddies out. The retirement funds are next. I’m predicting de facto nationalization within a decade, depending on circumstances.
I don’t put a penny in my 401(k). It’s just a money trap.
Again, first off, I’m gonna ask you one more time. Please read this and learn how to quote. It took me way too long to make any sense of that.
And from what I gather, you didn’t answer my initial question, you didn’t provide the proof I asked you for, and you simply reposted the same two quotes you did in your last post that have absolutely nothing to do with anything you and I have been discussing.
I would appreciate some actual response to the inquiries I posed to you (and perhaps an actual reading of the post I requested you read) before you start patronizing me as if I haven’t said anything substantive.
That’s absurd. I bought my gold at around $900 back in late 2008. It’s now over $1500 - its rise has outstripped the devaluation of the dollar precisely because investors have been piling in, trying to escape devaluation and the crashed market. The market will revaluate and gold will definitely go down in inflation-adjusted terms (its absolute value might remain flat from here or go down slightly or rise some more before the bubble bursts) but timing is everything. If I had “bought the market” at the same time, I’d be looking at even money in 2011 dollars - assuming I hadn’t lost my nerve and sold on the way down. Given the massive inflation which has occurred between 2008 and today, I’d be down in real terms.
Everything affects everything else. What is happening in the political arena matters. You can’t close your eyes and blindly “invest in value.” The actions of the government can crash the entire economy. Of course, you can’t close your eyes and blindly buy gold, either, something that a lot of the Ron Paul types and other gold bugs don’t understand. I would recommend against buying gold right now. Not sure if it’s time to sell yet but there’s definitely better things to buy than gold. I don’t know how much further it’s going to go before the bubble bursts but it’s definitely in a bubble. It’s up 2.5x since just 2006. There was a front page article just the other day in the WSJ encouraging people to buy gold. The cable news channels are running every other commercial for some gold seller. Never buy with the herd.
The gold price manipulators (London Bullion Market Association, BIS, and their ilk) are going to be looking for an opportunity to spank gold buyers. They lost all control of the gold price between 2005 and 2007 - it had not gone significantly above $400 for two and a half decades prior - and blowing a bubble is the perfect way to do it. I suspect this is what happened to the gold price in 1980.
I appreciate your education in the financial industry but my recommendation to you is to wake up and smell the coffee. The world is a significantly different place than you were taught in grade school. If you want to get an idea of what I’m talking about, try reading this.
I agree with Clayton about 401(k). It will be nationalized sooner or later and there is a lot of precedent for that in other countries. Argentina in 2008 for example. In time of relative peace and prosperity this may seem impossible to do, but thats what crises are for
Everything is possible, of course, but I don’t think “nationalization” of 401(k) or IRA accounts is likely in a crisis. They are voluntary accounts/contributions with $0 obligatory state minima and in that regard they are indistinguishable from any investment account or savings account – the only difference being that most of them are untaxed income. Even the rabid Argentinian socialists knew enough in 2008 to keep their paws off the voluntary portions of the private pension funds:
“VOLUNTARY CONTRIBUTIONS - Pension savers who made extra contributions to their retirement account can chose to move that amount to the state or keep it in an individual retirement account in a private fund. The private pension fund administrators can continue to handle private accounts for individuals who choose to maintain accounts above and beyond their obligatory state contributions.”
Just adding some color and nuance to the discussion.
I think you’re underestimating the avarice of the Feds. The US government has the largest revenues, debt and budget of any government in the world. It also has the largest military outlays. It has 700 military installations (not all of them are bases) in 170 countries (there are only 200 countries in the world). The current political nincompoops are talking about “closing the deficit” - while keeping taxes flat and not cutting spending. It’s an exercise in insanity that is politically impossible to stop. The US government can’t raise taxes because they’ve done a great job concealing the extent to which Americans are actually taxed (over 50%) and people just won’t accept any more privation unless there is a war or something. They can’t cut spending because the whole system is a gigantic network of bribes (lobbies) and other entitlements.
I don’t expect nationalization of the 401(k) and IRA programs to use that label. It will be a stealth nationalization. Voluntary contributions are already held hostage by the 10% penalty, it wouldn’t be that difficult to say that “because of this crisis in American retirement, we must increase the ‘nudge’ we are giving to Americans to save their money so we are increasing the early-withdrawal penalty to 25%” at the same time the program is being nationalized. See how many people are willing to give up 1/4th of their wealth to escape nationalization.
Clayton, the risk is there, I agree. But following this logic, any bank account, or any known account or property, for that matter, is also at risk of being confiscated. I don’t think the nomenclature (401k, IRA, penalty, savings, income, tax, etc.) would make much of a difference. Btw, in the USA the obligatory portion of pension “savings” (Social Security) is already “nationalized”.
