Every time I've made numbers equities have underperformed gold and housing long term, esp. when considering commissions and tax. One would normally look for 20-30 years max. returns, as 100+ year periods will include one-off historical events that will change the picture completely. Case in point, the hindsight bias is strong on this one, because it's fact that these countries were chosen because they are the "winners" in recent history. What about the "losers"? you don't know where your country will stand in 110 years time.
I also work in the finance industry and I agree that Joe Doe outsider shouldn't gamble a significant chunk of his net worth in the stock market. Gambling being the key word here.
I'm dubious as everything I've seen shows equities winning over almost any 20-30 year period. And by equities I mean a minimal load index fund. It's well known housing pretty much follows inflation (http://www.ritholtz.com/blog/wp-content/uploads/2008/12/case...).
On the surface, it would seem bizarre if housing could beat stocks long-term. I can't speak much for gold.
1. housing: People have to afford their houses. As long as land is not scarce, this is just going to follow (housing-part) inflation. The reasonable maximum (across the US) is median income growth.
2. Stocks: As a first (0th?) order approximation, some weighted average of US and world-wide nominal GDP growth. Should easily beat #1.
3. Gold: Pretty complicated to track. Demand will rise as world incomes go up. But suppliers respond and pump more gold out. In theory, this makes gold more expensive but advances in technology can make production cheaper. As a naive investor though, I see no reason to invest in gold as I know little about the supply-side.
> It's well known housing pretty much follows inflation
I'm curious why you claim that while providing a reference that clearly contradicts you: a reference house cost $100k in 1890, went down to under 70k in the 1920s and then up to over 200k a few years ago. Note that this is already corrected for inflation.
Gold is what it is. It's a commodity. It's pretty much moved with the CPI except in the last few years. You can make money if you can correctly speculate short term trends, long term it tends to be an inflation hedge at best.
Unlike your average stock, which depends on many variables. You can do better or worse, but if you have no idea about these variables it's perfectly wise to stay away.
Shows the S&P 500 clearly outperforming gold from 1973 to 2010. Of course, there were massive fluctuations; what this says to me is to be diversified (and diversification includes stocks).
Unless I'm really stupid, this only works if you happened to buy in 1973.
You see the big downward trends in the stocks in 1998 and 2007?
Now pretend you invested in 1997 or 2006 instead of 1973. All of a sudden the graph would be transformed to show Gold as the clear winner. The guy's clearly an amateur, even as someone who has no interest in stocks whatsoever, never take advice from someone like this.
If you invest at the wrong time you lose money. The problem with graphs like this demonstrating the 'long-term' is that people conveniently pick a year that works for their point. The other common one is that people always pick just after the great depression to demonstrate stock market growth over time.
the same can be said of gold. if you pick gold anytime from 70-95 it loses out on stocks. Also, I don't see the big downward trend in 98, as we didn't peak until 2000 ;-)
The real takeaway is to not try and time the market. don't just buy all at once. if you continually invest over time you will have much less volatile returns, and continually investing over almost any period the stock market has higher returns than the other asset classes mentioned.
Huh? Any investment is going to incur capital gains taxes when sold. Commissions are trivial for large stock purchases and certainly are very low compared to say gold or property.
If a company is ejected from the S&P 500, tracking funds tend to eject it as well. Also these charts tend to not be dividend adjusted, further increasing the benefit of stocks. Check out SPY; it actually has out-performed the S&P 500 (I believe due to dividends and what not).
Physical gold purchases don't need to be declared in many places. Which means 0 tax, plus the fact that the government doesn't know you even have it, were they to introduce any kind of legislation.
These charts usually include dividends. When they don't they are very crappy. In many international stocks dividend is too substantial to be possibly missed.
I use to feel that way as well. Thing is - everything is a gamble. Holding your money in the US Dollar is a gamble in the dollar. How can you hold (and ideally grow) wealth without exposing it to risk?
Those people who push equities generally are brokers (and thus get a cut of your transactions) or shareholders (who need people to buy their stocks). Unfortunately the capital formation goals have fell by the wayside.
My guess is that he's talking about direct investments in particular stocks.
I'm another person who worked for financial traders. I would never buy individual stocks. All my money is in low-load funds (e.g., index funds). I'll probably buy some income property soon. But I know exactly who is on the other side of stock market trades, and I know how hard it is to beat them.
http://www.mymoneyblog.com/impact-of-inflation-on-stocks-bon...
Real Returns from various asset classes: Stocks: 6.9% Bonds: 2.3% Bills 1.0% Gold 2.4% Housing 1.5%
Stocks crazy? Looks to me like the rational thing to invest in.