There is quite the discussion in comments over at Peter’s place about the role of gold versus investments. It appears as though at least one user doesn’t understand that precious metals are a store of value, but not an investment.

What the Federal government has done (and is doing) with our fortune is a disgrace, but governments have done that since, well, ever. Nothing new. Inflation isn’t an increase in prices. Inflation is a currency becoming worth less. Sometimes a currency is tied to a physical asset like gold, silver, or salt. Sometimes it isn’t. To say that gold is money and dollars are currency makes you sound like an idiot.

If currency is not tied to a physical asset, then its worth is not set in stone, pun intended. Because it does not in and of itself have value, currency will inevitably and eventually become worth less. That is called inflation.

To protect yourself from inflation, you are better off holding something that has intrinsic value. That can be food, oil, livestock, or precious metals. Over the long term, precious metals are a great way to own an asset with intrinsic value. This is because food spoils, livestock dies (and needs to be fed), oil is bulky and difficult to store. Even non-precious metals are difficult to store. An quantity of gold takes up far less room than an amount of lead of similar value.

Because they have intrinsic value, assets like precious metals don’t increase OR decrease in value. They just are. In 1920, an ounce of gold could buy a nice Colt handgun. The same holds true today. The problem is that your asset (the gold) won’t appreciate in value. It is therefore a nonperforming asset, and not an investment.

An investment is an asset that will not just hold its value, it will increase in value. Things like real estate, stocks, bonds, and the like will change in value. Sometimes for the better, sometimes not. If I had bought a new Ford Mustang in 1964, I would be doing far better than if I had bought a 1964 Ford Anglia. Picking winners and losers is how fortunes are made and lost.

Even though it can seem like it, the stock market is not the same as a casino. As both an investor and a gambler, I will tell you that they are fundamentally different. Where the ball lands on the Roulette wheel is a random event, that is, the ball is just as likely to land on the ‘4’ as it is on the ’30’.

Not so in the stock market. Companies are managed by people. Management teams. Some are good at what they do, some are not. Companies that are well run tend to do well. Companies that are poorly run tend to not do well. But how to tell the difference? The same way that you judge people. Look at how they have performed in the past.

The problem here is that random events can ruin even the best companies. A big fire in a key factory. An executive gets caught embezzling. A government contract is awarded to a competitor. The best defense to this is to diversify. Own shares in many companies across many segments of the economy. That way, if one company fails, the rest can carry you through.

That is why I am a huge fan of index funds. I buy shares in managed funds that are filled with large companies. The S&P500 is the 500 largest companies in the nation. They are large because they are successful. Even though there are bad days and good days, the good days outnumber the bad. That is why the S&P500 tends to increase.

You don’t have to know about business or stocks or get involved in the day to day workings of the market. Buy into an index fund and let the money compound. There are many to choose from. You can get a fund that buys shares of S&P500 companies. You can get a fund that buys companies that pay dividends.

Once you are comfortable with index funds and want to pick a couple of individual stocks to experiment with, do it. Just be careful. Don’t put all of your eggs in one basket. Just a small purchase at first. Leave most of your invested money in those index funds, and just buy a few shares of the individual stock you want to play with.

In March of 2020, I saw the price of cruise line stock nosedive. I figured that it was an opportunity. I started by buying $5K worth of Royal Caribbean in March. By May, we wound up buying about $50K worth of Royal Caribbean at an average price of $30 a share. I began selling it off in December of 2020, at an average of $90 a share. I tripled my money in less than 6 months. During the same time period, gold went from $1500 to $1800 an ounce- a 20% increase.

That doesn’t mean that you avoid gold. Remember, diversify. Gold should be PART of your savings, not ALL of your savings. Entire books are written on this. If gold were the answer, then billionaires would all have a vault filled with coins that they swim in like Scrooge McDuck. They don’t. You shouldn’t, either.

Categories: economics


Fido · February 3, 2022 at 5:12 pm

There is an argument that silver could be an investment, given the spread between historic and current gold/silver ratios. If you believe the prices of gold and silver are presently the result of market discovery, then clearly they are *only* a store of wealth. If instead, you believe that their prices are being artificially suppressed, and that that suppression will soon end, then you could argue it’s an investment.

    Divemedic · February 3, 2022 at 7:21 pm

    Conspiracy theories are not a solid investment plan. Silver isn’t an investment because it doesn’t grow in value. Oil is the same.

    What you are referring to is speculation. It is no different than buying cattle or oil futures, then making money off of demand fluctuations. That isn’t investing.

      Fido · February 4, 2022 at 1:09 am

      Most investment sites seem to claim that speculation is a subset of investment, differentiated by a higher perceived risk. I know of no objective measure of risk. YMMV

        Divemedic · February 4, 2022 at 6:14 am

        There is a chief difference, apart from risk. Investing means that you are purchasing something of value that will increase in value over time.
        Speculating involves buying something and taking profits from short term fluctuations in price caused by temporary stressors in the market. Think of the guy selling generators for ten times their normal price after the power goes out. The generators aren’t more valuable, they are temporarily in higher demand. What makes this more risky is that he may not be able to sell them all.

Beans · February 4, 2022 at 1:11 am

lAs to stockpiling gold, silver or any other precious metal or item, just remember, that in the midst of the Great Depression, the democrats made personal ownership of monetary gold illegal.

Which I like to point out to the gold hoarders I know.

And the more ‘socialistic’ a country is, the more the government makes private ownership of precious metals, luxury items, spices, salt, food, fresh water illegal.

When the crash comes, look for the state or federal governments to make stashing or hoarding illegal. You know they will.

    Fido · February 4, 2022 at 1:23 am

    When private ownership of food and fresh water has been made illegal, “illegal” loses much of it’s stigma.

DMLMD · February 4, 2022 at 6:39 am

I’m reasonably comfortable. Sure, I’d like more money and if there was a ‘sure’ way i’d be there in a heartbeat, but if I could retire a maintain current life-style, I’d be fine. I got some money in annuities and the price to pay for ‘gar-un-teed’ zero loss is limited gains. That is fine for the number of dollars, but not the value of each dollar. If inflation goes hyper, while I don’t lose dollars, I lose value. If my portfolio increases 30%, but inflation runs 40%, I lose. I was about to move some real money from a low performing instrument into another annuity.SIlver and gold to store value seems safer right now given the risk of the dollar to lose value faster than investment can increase the number of dollars. Now to figure out the correct ration in the whole diversify game….

    Divemedic · February 4, 2022 at 6:54 am

    I agree with you. Right now, there is too much volatility in the market, which is precisely why I moved most of my savings out of the stock market. The only thing worse than dollars losing value due to inflation is losing those inflated dollars in the stock market due to market volatility.

    The trick is getting back into the market while it is close to the bottom. I expect that the bottom will be at least three more years in the making.

E M Johnson · February 4, 2022 at 8:18 am

yea, I made a benign comment and that “special” indidual felt compelled to snark at me. I had not got into the discussion on $$ matters because I’m not knowledgeable. He is a chest thumper thats a time waister to engage. WRSA must post his shit for clicks. I used to read his content but quit after figuring out his type especially after the start of the coof games.

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