Thursday, December 01, 2011
GOLD, EQUITIES OR CASH?
Over the period 1927-2011, $1.00 invested in equities grew 29 times greater than $1.00 invested in government bonds.
(However, equities massively underperformed bonds from late 1929 to mid-1932 and their cumulative return didn’t overtake bonds again until 1950. Stocks have also cumulatively underperformed bonds since 2000.)
Should you could keep your money in gold, or shares (equities) or US government bonds?
In early September 2011, gold was around $1,900 an ounce.
The high price was due to many investors thinking that inflation was going to soar.
At the very same time, the 'ten-year US Treasury bond' was yielding less than 2%.
The popularity of the US treasury bonds was due to many investors believing that we were going to get deflation.
(Finance: Two views of the future The Economist)
The gold price is now well below $1,900 an ounce. ($1,715 an ounce)
Investors have looked at Japan.
Japan has had many years of high debt, low interest rates, and deflation.
Shares tend to do best when inflation is low.
But, shares MAY be a better hedge against inflation than government bonds.
Investors in shares hope for a recovery by 2013.
American companies profit margins "on some measures were even higher in 2011 than they were before the credit crunch; the last time they were so high was in the 1960s."
"Companies have built up a cash cushion to protect themselves against recession." (Finance: Two views of the future The Economist)