See this is what I was looking for - how gold fits into an investment portfolio. According to everyone else it was speculation. But one question: is your mutual fund in gold or gold-mining companies?
How is that possible? The price of gold peaked in the early 80s and still hasn’t reached that same level in inflation-adjusted dollars. Hell, even in nominal dollars, the price of gold only reached the 80s peak again in the past two years. Yes, gold has been on a good run since 2001, and it has nearly doubled since then. But that’s only after going down, down, down for the previous twenty years. Gold has been a terrible investment over the past 30 years. Who knows what the future may hold, but the past has not been good for gold.
See this chart for both the inflation-adjusted and nominal dollar price of gold.
http://www.inflationdata.com/inflation/images/charts/Gold/Gold_inflation_chart.htm
How is it possible that you’ve made several times your investment?
Correction to my post above – gold has more than trippled since 2001, not doubled. Apologies for the typo.
So yes it has been a good investment since 2001, and if that’s when you started investing in gold, then kudos to you for great judgment. But if you’ve been investing in gold since the 80s as you say, then I don’t understand how you made several times your investment over that period, since the historical chart of gold prices seems to show gold performed poorly over that 30 year period (even if you factor in the great run since 2001).
I’ve seen/read professionals suggesting that 10% of your investment portfolio can be kept in precious metals/bullion. No claims on whether mining stocks, gold funds, ect. are analagous.
If you think it’s difficult to explain how gold is an investment (as opposed to a hedge against inflation), I have to ask, why do people think that shares of stock are actually worth anything? Yes, you have a 1x10E-8 share of votes in periodic meetings, and theoretically, you own 1x10E-8 of the company, but at liquidation (and in every other way imaginable), the company owes its bondholders and other creditors first, and its shareholders last. It also has no mandate to pay dividends other than “tradition.”
The only sane investment, therefore, is to buy bonds. Of course, my portfolio is only about 20% bonds, but don’t do as I do, do as I say. 
Gold has much done better than stocks in “real” terms.
If you look at a longer time period, say, 80 years, then Gold has done pretty well compared to stocks.
In 1929, the Dow Jones was selling for 20 ounces of gold. Today, the Dow Jones is worth only 10 ounces of gold - less than half.
(of course, this assumes that you were smart enough to sell each and every one of the stocks that were in the Dow Jones in 1929 that have since went bankrupt, became worthless, and were replaced by another and yet another stock. If you just held on to the same original stocks that were in the Dow Jones in 1929, then Gold outperformed a constant set of 1929 stocks by over a 100 times )
If you look at even longer time periods, then gold has easily held its value for 100 or 200 years. On the other hand, if you bought and held onto paper currency from 150 years ago, or a share of stock from 150 years ago, the paper money or the share of stock would likely today be worthless.
Huh? I don’t have exact numbers here, but I think it’s more accurate to say that an investment in gold over eighty years would have gone no where, while an investment in stocks would have gone up a bunch (10-11% annually on average, as I remember).
Originally Posted by Susanann View Post
In 1929, the Dow Jones was selling for 20 ounces of gold. Today, the Dow Jones is worth only 10 ounces of gold - less than half.
Nope!
The Dow Jones was 380 in 1929, and was worth 19 ounces of gold (at 20 bucks an ounce).
Today after 80 years, the Dow Jones has fallen in value to just 9 1/2 ounces of gold, (10,520 / 1100 an ounce).
You would have lost half of your wealth over an 80 year period if you had it in stocks instead of gold.
Some people, like Peter Schiff, are predicting that the Dow Jones is going to be continue to fall in value and will be worth only 1 ounce of gold in the near future.
Gold holds its value. An ounce of gold 200 years ago would buy a nice rifle or suit of clothes, an ounce of gold would still buy a nice rifle or suit of clothes 100 years ago, and an ounce of gold could still buy a nice rifle or suit of clothes today.
99% of all stocks from just 100 years ago are worthless today.
This analysis completely ignores dividends and stock splits.
Stock splits ARE !!! taken into account in the Dow Jones, the formula for the Dow is automatically and immediately adjusted each time a stock split happens.
If you want to look at extraneous things like dividends, commissions, and taxes, then gold really outshines stocks, because dividends are taxed as income at the local, state, and federal. Stocks appreciating in nominal terms taxed as income at the local, state, and federal.
Gold has outperformed stocks and dividends even more after factoring in dividends, commissions, and the federal income tax, state income tax, and city income tax on nominal increase in prices.
In nearly all cases, holders of gold, do not pay any income tax on the nominal increase in price of gold. Furthermore, gold Eagles, gold Kruggerands, gold maple leafs do not go bankrupt and gold does not need to be constantly monitored and replaced as does bankrupt stocks like General Motors and Sears.
If you try to avoid income taxes on stocks thru a buy and hold strategy, then dividends in the long term of a static group of Dow Jones stocks are near zero . The current dividend yield is less than .1% if you tried to avoid income taxes from buying and selling and insteaed bought and held the Dow stocks. Moreover, previous Dow Jones stocks like General Motors, Woolworth, Sears, and Distilling & Cattle Feeding Company pay no dividend.
The longer you hold stocks, or bonds, or paper money, 50 years, 100 years, 200 years, the more its value approaches zero. On the other hand, Gold, for thousands of years, is pretty much a constant store of wealth.
dividends are not extraneous to stock returns. at all. a large, large part of stock market returns are through dividend re-investments.
Yes they do, when they realize a capital gain. Just like any other capital asset
http://www.simplestockinvesting.com/SP500-historical-real-total-returns.htm
You can’t actually do math, can you?
Do you actually personally know anybody who has paid income taxes on gold, or are you just making it up?
Originally Posted by Susanann The Dow Jones was 380 in 1929, and was worth 19 ounces of gold (at 20 bucks an ounce). Today after 80 years, the Dow Jones has fallen in value to just 9 1/2 ounces of gold, (10,520 / 1100 an ounce).
You would have lost half of your wealth over an 80 year period if you had it in stocks instead of gold.
Lets see, the stocks were worth 19 ounces of gold, and now they are only worth 9 1/2 ounces. Seems like 50% to me.
Do you know math?
Why don’t you impress us all and tell us what is your answer of an investment that goes from 19 to 9 1/2?
Why don’t you tell us how much 19 ounces of gold back then, and how much 9 1/2 ounces buys now?
Already did that in post 29.
19 ounces of gold will buy twice what 9 1/2 would buy, whether it was 2009 or 1929 or 1829 or 1729.
try again, hon.
This simply doesn’t make any sense. Even though you pay taxes on dividends, they still increase the total gain for stocks. Adding them in to your calculation (which you have to do in order for it to be a valid comparison) can only make stocks a better deal. It can’t make them even worse than you already think they are compared to gold.
The rest of your argument is quite dubious, but this sentence stands out as a demonstration that you don’t understand basic accounting, let alone economics.