0 votes

Gold vs. Stocks

Over the past 40 years or so gold has risen from 35 FRNs to 1500 FRNs. That is about a 10% compounded annual return.

So my question is how much would a typical stock investor made over that same 40 year period?

I have heard 10-11% compounded annually. I don't really know if that includes taxes on dividends and capital gains.

It sounds to me like the stock returns are at best negligible when compared to gold.

Anyone want to weigh in on this?


Here are some things to keep in mind:

The S&P has yielded about 7.16% a year compounded annually since 1971. The S&P has earned derivatives averaging 3.13% a year compounded annually since 1971. Add these numbers together for a 10.29% return compounded annually for 40 years.

Gold has yielded 9.9%(EDIT 7/15/11, over 10%) compounded annually since 1971.

So it would appear that stocks have out preformed Gold by 0.3%.

But wait, capital gains taxes must be paid when the stocks or the gold are sold for FRNs. Gold coins are currently taxed as "collectibles" (28% I think), while the capital gains on the S&P will vary depending on your tax strategy and bracket.

But, for the purpose of comparing a mans holding and not selling, let's set aside the capital gains taxes.

Now we must look at the derivatives. Gold coins do not pay derivatives. The S&P pays on average 3.13% compounded annually over 40 years in derivatives.

Taxes on derivatives are going to be either 5% a year or 15% a year depending on your tax bracket.

If taxed at 5%, there will be 2.97% total derivatives.
If taxed at 15%, there will be 2.66% total derivatives.

So, the total(yield + derivatives) for stocks is between 9.82% and 10.13% depending on your tax bracket and not the original 10.29%.

Gold is at 9.9%.(EDIT 7/15/11 10%)
S&P is between 9.82% and 10.13%.

(These numbers do not indicate the changing tax systems and schemes since 1971, but provide an eyeball estimate.)


Host: "Congressman, you've been worried about it since 1971 though, If you were betting against the markets you would have lost a lot of money with that view."

Ron: "Yes, I was so foolish to buy gold coins at 35 dollars an ounce"

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.

Then and now

In 2006, I had to counter the argument that "investing" in a house had always been a winning proposition. (My boss's wife was a real estate agent, and keen to put me into a McMansion.) I said, "'Always' was then. This is now."

The stock market did well from '71 until 2000. The dollar was freed from that pesky requirement to honor gold redemption, but the world was hooked on dollars anyway, due to the remnants of the Breton Woods agreement. The US and its citizens went on a buying binge and ran the credit cards to the max. That was then. This is now, and it has been now since 2000. The two stock market rallies since then were due to inflation only. Stocks gained no real value.

Ĵīɣȩ Ɖåđşŏń

"Fully half the quotations found on the internet are either mis-attributed, or outright fabrications." - Abraham Lincoln



if commodities go up too fast

it will eventually take its toll on the economy and stock gains will slow down. since profit is premium based on raw goods, it is percentage based so remaining companies that survive will still have their shares increased but it is essentially an increasingly expensive general price tag that drives stock's value, not the other way around.

if commodities only increase moderately, the economy in general can still keep up rather undisturbed, and stocks should scale just as well as seen in recent decades. an explosive growth in commodities would be something different entirely.

Timing is Everything

About the time Ron Paul ran for Congress the first time and the Libertarian Party was founded, I was studying Economics. We all thought the dollar was about to collapse.

It waited a few years.

We still think it will happen.

The government is quite capable of shutting down the stock market, so the problem might be, do you have your stock shares in hand and can you trade them if need be?

What do you think? http://consequeries.com/

Why in the world would

Why in the world would government want to 'shut down the stock market'? This is a wild assumption.

It already does

Government Already does shut down the stock markets. What do you think the SEC's automatic circuit breakers do?
And it may not stop at mere one or two hour shut downs.
If the government is already willing to forcibly halt all trading for periods of one or two hours for circumstances it deems appropriate, it certainly might be willing to halt trading for longer periods as well.

Let it not be said that we did nothing.-Ron Paul
Stand up for what you believe in, even if you stand alone.-Sophia Magdalena Scholl


The original poster, IMissLiberty, intimated that a dollar collapse might cause a market shutdown. Possibly, but these exchanges don't run strictly on the dollar. Also, I don't know for certain, but I don't believe there has been an instance of all exchanges shutting down simultaneously. You must keep in mind, there are many stock exchanges, not just one.

I agree, that would be a

I agree, that would be a rather extreme and unlikely event, even in the midst of an extreme monetary crises. Although I would not say impossible as governments have been prone to implement weird and radical desperate measures in the midst of extreme crises.

Gonzalo Lira has an interesting anecdote you might enjoy about stock investing in the midst of the Chilean hyperinflationary collapse.
(It's near the end of the blog)

Condensed edited version:
A youngish man inherited US$3,000 from a deceased aunt. It wasn’t enough for him to leave the country and start over someplace else, So he took those $3,000, went down to the stock exchange, and spent all of it on Chilean blue-chip companies. The stock were selling for nothing—less than penny stock—because of the disastrous policies of the Allende government. His stock broker at the time told him not to buy stocks. Alfredo ignored his broker, and went ahead with the stock purchases and spent all of his $3,000.

Shortly thereafter, the commanders in chief of the four branches of the Chilean military staged a coup. Within a year, Alfredo’s stock rebounded about ten-fold. Since then, they multiplied several thousand-fold. Don Alfredo has lived off of that $3,000 investment ever since—it made him a multi-millionare.

He realized that either those blue-chip companies would be nationalized by Allende—in which case he would lose all his $3,000 inheritance, which really wouldn’t change his fortune very much—or somehow a new normal would arrive in Chile. Since the $3,000 couldn’t buy him anything, he took a gamble—and won.

Let it not be said that we did nothing.-Ron Paul
Stand up for what you believe in, even if you stand alone.-Sophia Magdalena Scholl

Value investing

I've used this philosophy (value investing) to great effect. Since I'm not a daytrader, it's really all I can do... either find undervalued stocks or high-dividend payers. I readily admit to a healthy amount of good luck being on my side, but my best investment to date (as of today) has risen just a bit more than 3,000%.

Excessive Corruption !

Or the hyper inflation of paper money.
Please check out the long term chart of the Japanese stock market:


I don't know why that link will not work, but somebody has the ability already to block whatever they decide to block.
What happens if they want to block stock prices???


Oh, dear...

You have no basis whatsoever for this assumption. The 'entire' stock market is corrupt? Meh.

I'm Not Going To Debate This With You,

But, please think of this rule/law ?

Possession is 9/10ths of the law.

Who holds an estimated 99% of stock certificates?

Answer; The same international investment bankers that are on the Feds list that are authorized, by the Fed to get lower interest rates, than everybody else, when they borrow at way below 1% interest.

Another words, these biggest banks borrow from the Fed at such a low rate, that when they turn around and lend out this money at a higher rate, they make tremendous profits.

But, the bottom line is: They are using other peoples stock certificates, that they hold, as asset collateral to not only borrow from the Fed, but also to create billions of dollars in derivative paper.
The same thing our local banks do when they lend out money that has been deposited, by the banking public to qualified borrowers.

If this derivative mountain is exposed to the public, the public outcry could sink the U.S. stock market system, along with these banks.

Whereas, a Gold coin in your pocket belongs to you as long as you can hold on to it.


Please cite your sources

for your claim... You said international investment bankers own 99% of all stocks? Prove it.

I wouldn't doubt that a very large percentage of stocks are owned by institutions, HOWEVER individual investors make up an enormous segment of those mutual funds, ETFs, IRAs, 401k's, hedge funds, etc. Another thing, you neglect to recognize the fact that governments are huge buyers of stocks and investment funds.

Waaaay back in 1999, there were an estimated 6 million individual online traders*. Doubtless the number today is much, much higher. Unfortunately, accurate information is difficult to find, probably because it would represent a competitive advantage to one online brokerage versus another.

Additional facts and figures**:
"The unparalleled rise in stock values attracted hundreds of thousands of new investors. By 1997 more than 42 percent of all American families owned stock either directly or through pension plans and mutual funds. Easier access to stock trading through Internet brokerages, which enabled investors to trade stocks without a broker for commissions as low as $5 per trade, added significantly to the numbers of those who ventured into the market. By 1999 more than 6.3 million households in the United States had on-line trading accounts, with assets totaling $400 billion. The popularity of on-line trading encouraged people to conduct more transactions, and to buy and sell more quickly in order to take advantage of short-term changes in the market.

During the 1990s the percentage of wealth invested in the stock market grew at an alarming rate. As recently as 1990, Americans had entrusted only 16 percent of their wealth to the stock market. Even during the "Bull" market of the 1980s, the portion of income devoted to securities never exceeded 19 percent. At the end of the twentieth century, by contrast, stock investments composed a record 34 percent of Americans' aggregate wealth, amounting to more than the value of their homes. A prolonged decline in stocks would thus prove cataclysmic for the millions who relied on the market to ensure their financial welfare now and in the future."

Market crashes tend to shake out "dumb money", so it is anyone's guess as to the number of individual online traders today (I was unable to find a reliable source). Having said that, the number of individuals who are market participants due to their retirement accounts owning enormous chunks of funds and other investments remains very high.

I even found an obscure (to me) web site that claims to have helped 5 million people learn about investing online for their investment clubs and they break down various top investments by number of members... not exactly chicken feed.***

UPDATE: Found a great source of some individual investor information... It's the Investment Company Institute ( www.ici.org )****, which is an organization that Bloomberg relies on for hard data. I found some illuminating facts from 2010...
-Total worldwide assets invested in mutual funds: $24.7 trillion (JUST mutual funds!)
- US household ownership of mutual funds—
-Number of households owning mutual funds: 51.6 million
-Number of individuals owning mutual funds: 90.2 million
-Percentage of households owning mutual funds: 44%

These are huge, huge numbers...!

* = http://news.cnet.com/Institutional-vs.-individual-investors/...

** = http://www.answers.com/topic/market-1

*** = http://www.betterinvesting.org/NR/rdonlyres/59721666-9CD6-44...

**** = http://www.ici.org/pdf/2011_factbook.pdf

Other good sources of information: Investopedia.com , Fool.com ,

Please read my original post again.

I said they { The investment banks }""HOLD"" the stock certificates, not own. The 99% was an estimate only.

""Each stock share is represented by a certificate or an electronic entry on the investment bankers books."" Look it up, please.

Here is a test for you Velveeta, what is the CUSP number on any of your stocks?

And by the way, I've traded stocks,since 1974, belonged to an investment club, and went to school, and amassed enough school credits, to become a stock broker.


Facts and figures

Well then, you should definitely be more careful about relying on unsubstantiated figures. :)

Also, I believe you are referring to (and misspelling) CUSIP, which is not important anyway. The CUSIP number can be found if one is a subscriber to Standard & Poor's, but this web site:


...used to give the CUSIP also.

Wrong Again, Buddy.

Unsubstantiated, is just another word for "Estimated" in my vocabulary, and as I said, I estimated, only because my broker recently told me that almost no one holds their stock certificates anymore, including all those investors you mentioned above.

Thanks for correcting my misspelling of CUSIP.

The CUSIP number is very important. It is the number assigned to each "individual" stock certificate whether it's for 1 share or 10 million shares of the same company.

It's the investment bankers job to keep track of all the outstanding stock shares of a company in circulation, and they do this by assigning CUSIP numbers to shares of stock.


It's a matter of perspective

The CUSIP number isn't necessary for the individual investor. I agree that I know of no one who holds physical stock certificates anymore. Far too inconvenient. Nicer for the online broker to keep track.

From the wsj


This link will not work, good article on commodities and banks warehousing metals

Gold and Silver are money. The rest are not.

That is why.

Gold preserves wealth, while

Gold preserves wealth, while businesses create wealth. Over the long term, the stock market wins. By a lot. Reference here:


That second web site lets you calculate the simple average or compound annual growth rate, including dividends, for any set of years you choose, going back to 1871. It also gives you the option to adjust for inflation.

Jan. 1, 1871 - Dec. 31, 2010 the compound annual growth rate (including dividends) is 8.92%.

1871-1913 CAGR 6.7%
1913-2010 CAGR 9.76%

However, after adjusting for inflation:

1871-2010 CAGR minus inflation 6.72%
1871-1913 CAGR minus inflation 7.26% <--- Winner
1913-2010 CAGR minus inflation 6.32%

The "typical stock investor" plays many stocks and diversifies

Buying gold, a single commodity, is like buying one stock.

So let's compare gold to one stock...say, Apple. For the past 20 years, Apple went from about 10 to 300. That's about 20% compounded annually.

20% sounds better than gold's 10%.

But, oh, I forgot, putting too much of one's money in one stock is DUMB. Perhaps, just perhaps, the same goes for one commodity.

Also, selective ranges are misleading as hell.

Look at gold's ENTIRE life and you'll its bubble has been burst many times.

Even Harry Browne never

Even Harry Browne never recommended 100% gold or silver, so I am in agreement. Diversity is the only way to spread your personal risk.

If one trades stocks exclusively, I've never heard a satisfactory "magic number" of stocks one should hold. I personally hold a wide variety and probably more individual stocks than most investors, but it has served me reasonably well so far.

good points

another that confuses the issue is that gold should be money not an investment we should be looking at it as a store of value not a way to get rich after all it does not create any new value like a company can

all this debate proves is that most people have lost the concept of real money gold and silver, and the recent explosion in price is people waking up to the fact that the whole world was robbed of any real store of wealth.

there is no fever like gold fever they say,I think the rally in gold will not stop untill it becomes money again,from the looks of it we still have some road to travel before that happens.


Gold is no longer money

If I have gold in my pocket and try to buy anything anywhere, I can't buy jack squat.

I have to go to some bank, institution, or pawn shop where they'd check the gold commodity price and buy it from me. That is not currency. The money they give me for the gold is currency.

At best, I can trade gold for something from some guy that is into bartering. But I could barter with anthing (my car, my couch, my comb)...that doesn't make those things currency.

There's no denying that the commodity, gold, has been performing well over enough years to count as a viable investment. If you already have a solid diversified investment portfolio, by all means, buy gold and silver. But don't buy gold unless you are already diversified...that's like buying a single stock...too volatile.

And don't piss on my boots and tell me it's raining. That is, don't tell me that gold is hedge on inflation, or a currency (as if I can actually use it like $), or that the dollar is collapsing, etc. Those are slimey sales tactics and discredit the gold merchants that advertise on this board.

alan greenspan before he went to the dark side

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard.


As Road Runner points out,

As Road Runner points out, the fact that Road Runner can “go to some bank, institution, or pawn shop where they'd check the gold commodity price and buy it from me” means that gold stores value. Road Runner establishes that gold stores value which endorses the very point that Goldslinger777 made. The question to consider then is whether gold will hold such value better over a set period of time than the currency you are comparing it with.

As to whether gold is money, Road Runner applies a prevailing currency analysis. “Currency” and “money” are not synonymous terms, but the prevailing currency analysis Road Runner applies is faulty as the same result can be said of all other world currencies. That is just a verbal parlor trick. If Road Runner had a pocket full of Yen (or Yuan, Euros, Real, Rupees, Rubles, NZDs, ADs, …) and walked into any common retail shop in the USA he still “can’t buy jack squat.” Road Runner would have to go to some bank, institution, exchange where they would check the Yen (or whatever other currency) price and buy it from him. All that means is those, along with gold, are not prevailing currencies in the USA which does not negate their value; and could perhaps be due to government intervention such as legal tender laws, capital gains taxes, reporting requirements, recording keeping regulations, income tax regulations, money laundering laws and regulations, RICO laws, etc.

As to Road Runner’s last paragraph it makes no logical sense whatsoever – don’t give him any arguments he does not wish to hear because that would be “pissing on his boots and telling him it’s raining” - huh? A parallel application of this illogical statement can be made as follows:

And don’t piss on my boots and tell me its raining. That is don’t tell me that dollar will lose value to inflation, or is not a reliable long term store of value (as if it won't actually hold value like gold), or that the dollar is not getting more valuable. Those are slimey [sic] sales tactics and discredit the Federal Reserve critics/Ron Paul supporters that advertise on this board.

Not to own gold is to trust the value of paper money and the government's integrity. No one in his right mind could trust the U.S. government any more. - Marc Faber

Let it not be said that we did nothing.-Ron Paul
Stand up for what you believe in, even if you stand alone.-Sophia Magdalena Scholl

gold of course does better

before 1971 gold was fix by government intervention..since gold has floated freely it has gone from 35 to 1500 thats a hell of a lot better than the market has done since 1971..

the starting point should therefore be 1971

well no

why not 20$ before fdr devalued it then? when the dow was at 40 and now is over 12,000

it didnt start trading freely till 74 and when it opened it was $150 if memory serves, so 10x your money at 1500. the dow was 1000 or so around then so also roughly 12x your money excluding dividends.

heres a new twist, did gold and the dow go up or did the measuring stick (the dollar)go down?

my point is not to confuse but to point out that you can make arguments that the dow does better than gold and vice versa simply by chosing different start dates to make your case.


Ding! Ding! Ding!

You said it right there:

"did gold and the dow go up or did the measuring stick (the dollar)go down?"

what was the purchasing power of the Dow back in the 70's vs today? i.e. if you cashed out in dollars, what would those dollars be capable of purchasing then vs today?

Gold is simply a preservation of purchasing power. For example, in ancient Rome, an ounce of gold could buy you a nice suit. A hundred years ago, an ounce of gold would buy you a nice suit. Today, an ounce of gold will buy you a nice suit.

Now let's look at our U.S. dollar. Oh .. what's this? It's lost 97 percent of its value over the last 100 years.

The Dow is priced in dollars ... soooo...which is better to hold on to for the long-term - the Dow or gold?

Fact is if you shift the paradigm of your thinking and price the Dow, Housing, Oil, and everything else in gold .. you'll see that this force fed "recovery" is actually quite a hoax... but I'm preaching to the choir.

I think thats what happend here

as far as I can see the price of just about everything since 71 has gone up roughly 10x, houses cars food cigarettes , my parents house bought in 75 for 30k is now 400k there car a camaro was 4k now its 50k.

the increase in price is an illusion,its our money being destroyed thats causing this.