Since the gold standard was completely abandoned in 1971, story goes something like this…
1972-1980
Gold Return: +1256%
S&P 500 Return: +97%
Narrative: Gold is the best investment in the world, and will continue to be so forever. There is hyperinflation in the U.S. and a secular stagnation in real growth.
1981-1999
Gold Return: -51%
S&P 500 Return: +1915%
Narrative: Stocks are the greatest investment the world has ever known, and will continue to be so. The internet age has forever changed investing returns and valuations; there is no upward limit to the growth in stocks in the coming years.
2000-2011
Gold Return: +443%
S&P 500 Return: +7%
Narrative: Stock investors have suffered through two 50% bear markets while Gold has more than quintupled. These are deflationary, depression-like conditions and only Gold can protect investors from what’s to come.
2012-2018
Gold Return: -22%
S&P 500 Return: +157%
Narrative: We’re in a Goldilocks period of low inflation and easy money. This is unbelievably bullish for stocks and very bad for Gold.
Overall, since 1972, the S&P 500 has had a higher return (10.6% vs. 7.4% for Gold) with lower annualized volatility (15.0% vs. 19.8% for Gold).
On this basis, Stock Market Bulls would say equities are the better long-term investment. Agreed, but how many equity investors would be willing to sit through an 11-year period (2000-11) with essentially no return and two 50+% drawdowns in between? Very few, just as there are very few Gold Bugs who would sit through a 19-year period (1980-1999) where their investment was cut in half.
Which is why the real winner is neither Stock Bulls nor Gold Bugs. It is the investor who can actually remain invested through tough times in a single asset class by maintaining a diversified portfolio of multiple assets: stocks, bonds, real estate, commodities, and alternative investments. Combining uncorrelated assets has been shown to reduce overall portfolio volatility and improve risk-adjusted returns.
1972-1980
Gold Return: +1256%
S&P 500 Return: +97%
Narrative: Gold is the best investment in the world, and will continue to be so forever. There is hyperinflation in the U.S. and a secular stagnation in real growth.
1981-1999
Gold Return: -51%
S&P 500 Return: +1915%
Narrative: Stocks are the greatest investment the world has ever known, and will continue to be so. The internet age has forever changed investing returns and valuations; there is no upward limit to the growth in stocks in the coming years.
2000-2011
Gold Return: +443%
S&P 500 Return: +7%
Narrative: Stock investors have suffered through two 50% bear markets while Gold has more than quintupled. These are deflationary, depression-like conditions and only Gold can protect investors from what’s to come.
2012-2018
Gold Return: -22%
S&P 500 Return: +157%
Narrative: We’re in a Goldilocks period of low inflation and easy money. This is unbelievably bullish for stocks and very bad for Gold.
Overall, since 1972, the S&P 500 has had a higher return (10.6% vs. 7.4% for Gold) with lower annualized volatility (15.0% vs. 19.8% for Gold).
On this basis, Stock Market Bulls would say equities are the better long-term investment. Agreed, but how many equity investors would be willing to sit through an 11-year period (2000-11) with essentially no return and two 50+% drawdowns in between? Very few, just as there are very few Gold Bugs who would sit through a 19-year period (1980-1999) where their investment was cut in half.
Which is why the real winner is neither Stock Bulls nor Gold Bugs. It is the investor who can actually remain invested through tough times in a single asset class by maintaining a diversified portfolio of multiple assets: stocks, bonds, real estate, commodities, and alternative investments. Combining uncorrelated assets has been shown to reduce overall portfolio volatility and improve risk-adjusted returns.
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