Gold or Stocks: Which is the better inflation hedge?

[Keim]

From the link:

WOOT! We have our "Death of Equities" sighting for this market cycle!

Yeah, I giggled at that quote too. Going to extremes in any discussion always makes the person making the extreme argument look ridiculous.

 

[clifp]

Gold has increased 58 fold since 1928, Clifp. A pretty close match to DOW 1928, easily surpassed by someone that got in during the depression.

Lesson: By stocks in depressions. Gold when stocks are highly valued. IE Buy on the dips-duh! (duh aimed at self, not others.)

Ah another opportunity to make a lecture about dividends. The Dow and SP index don't include dividends. From 1871 to 2001 the average dividend yield was 4.54%, Dow stocks traditional have higher than average yield but of course the last 10 years yield have dipped significantly. If we add a 4.5% yield over the last 84 years that adds another 40 fold increase to stocks (and that also fits with dividend providing roughly 40% of the total returns in the market).

This to me is the biggest difference between gold and stock, gold is non productive asset you have to pay to store, and insure so from an investors perspective you have can't actually realize all of golds gain. I.E. the returns of gold mutual fund or GLD lag the price appreciation of the metal . In contrast stocks produce income in the form of dividends and now days have very low transaction costs.

The caveat is that stocks look really good compared to gold from the prospective of US investors, for the rest of the world, I doubt the gap between stocks and gold investment is nearly as large.

 

[ziggy29]

Ah another opportunity to make a lecture about dividends. The Dow and SP index don't include dividends. From 1871 to 2001 the average dividend yield was 4.54%, Dow stocks traditional have higher than average yield but of course the last 10 years yield have dipped significantly. If we add a 4.5% yield over the last 84 years that adds another 40 fold increase to stocks (and that also fits with dividend providing roughly 40% of the total returns in the market).

Good point, when people only look at index levels and not factor in dividends for total return.

During the crash I cringed every time someone said that someone who owned "the market" (as defined by the Dow 30) at the 1929 market peak didn't come back to break-even until 1954. The reality is, if you include reinvested dividends, they got back to even in 1944, not 1954.

 

[Gone4Good]

Good point, when people only look at index levels and not factor in dividends for total return.

During the crash I cringed every time someone said that someone who owned "the market" (as defined by the Dow 30) at the 1929 market peak didn't come back to break-even until 1954. The reality is, if you include reinvested dividends, they got back to even in 1944, not 1954.

True. Historically dividends were a huge portion of total return. But back in 1930 the dividend yield was something like 8%. Today it is 2%. With luck, the money that used to be paid out as a dividend is finding equally productive uses. Otherwise

 

[NW-Bound]

Exactly the anti-Wh*** that I have been hoping for.

From the link:

WOOT! We have our "Death of Equities" sighting for this market cycle!

 

[usafmd]

I'm no gold bug, but as many of you know, the Harry Browne Permanent Portfolio has 25% gold and for a risk(volatility) return basis has been extremely hard to beat.

A discussion about the permanent value of gold should include the long-term viability of any fiat currency ever created. Given how QE1 or QE2 has inflated the money supply, when employment increases, watch out for inflation. Then maybe gold might be as worthy of scorn.

 

[clifp]

I'm no gold bug, but as many of you know, the Harry Browne Permanent Portfolio has 25% gold and for a risk(volatility) return basis has been extremely hard to beat.

A discussion about the permanent value of gold should include the long-term viability of any fiat currency ever created. Given how QE1 or QE2 has inflated the money supply, when employment increases, watch out for inflation. Then maybe gold might be as worthy of scorn.

+1

The Harry Browne Permanent Portfolio, the experience of non US citizens with gold on this forum, and listening to one of my smartest friend discuss its value, are 3 reasons that I am no longer a gold skeptic.

I don't necessarily buy it at this level, but anybody who is at or near retirement and has <5-25% of their assets in gold I think is being prudent.

Of course I think prudence is over-rated, what fun would the 2008-2009 crisis have been if 25% of your assets were going up in price

 

[MichaelB]

The permanent portfolio adds the discipline of rebalancing to its holdings, and this makes all the difference. It's success is part from the holdings and part from the rebalancing, and is a good example of how gold and PM can be used to increase overall portfolio return.