Why stocks, housing, and gold are not really investments

Last updated on May 17th, 2018  

but they are the best place to put your money

When considering what to do with your money it is important that we all use the same words to mean the same things.  You will be surprised how misleading the words use by the stock pundits and media are.

Let us use the example of my Mom, and what she could have done with $24,000 in 1965 and what she would have “had” in 2018.

1965                           2018
housing $24,000              > $1,500,000
gold $24,000 ($35)           > $900,000 ($1325)
S&P 500 $24,000 ($86)        > $735,000 ($2636)
mattress stuffing $24,000    > $24,000
T-bills $24,000              > $117,000 (3%)
bars of soap $24,000 ($0.16) > $225,000 ($1.50)

So housing, gold, and stocks look like they were great investments.

She turned her $24,000 into $735,000 to $1,500,00 and is now rich.

But did she and is she?

Consider the gold that she might have bought in 1965.  Had she bought gold it would have sat in a safe.  How did it change from 1965 to 2018? The gold is still just the gold. It has not changed.

Or what about the house, the thing she did buy, how did it change from 1965 to 2018 to go from being “worth” $24,000 in 1965 to $1,500,000 in 2018? The house is still just the house.

If she sold the house and tried to buy a similar house in the same market all she could purchase would be a similar house. She cannot buy **more ** house. The house buys exactly the same amount of “house” today as it did in 1965.

It is similar with the gold. The gold will buy exactly the same quantity of gold today as it did in 1965.

Wealth has not been created. The purchasing power of the gold and the house have remained the same.

But what has changed? The dollars have changed. In 1965 you could buy a house like my Mom’s for $24,000. In 2018 you would need 66 times as many dollars or 1,500,000 of them to buy the same house.

The house did not change. The gold did not change. Both maintained their purchasing power, but the dollars…, the dollars lost 98.4% of their purchasing power or their value over the 53 years from 1965 to 2018.

Generally speaking an “investment” returns more than you put into it.

Calling housing, gold, or stocks an investment is a mistake over the long term. As my Mom’s example shows they are at most wealth preservation strategies. Unless the purchasing power at the end of the “investment” has increased, can you really call it an investment?

As the chart above shows holding dollars in a mattress or a safe deposit box is an terrible idea. 98.4% of their purchasing power was lost from 1965 to 2018.

Keeping the wealth in housing, gold, or stocks at least keeps you treading water. The value or purchasing power is maintained from 1965 to 2018.

So what happened to the dollars. Rather than create a label for what happened, let us just say that the dollars lost purchasing power.  The labels people create are just meant to mislead you.

Consider what would happen if my Mom had kept the dollars in a safe deposit box in 1965 and then wanted to buy her house in 2018.

She would still have $24,000 in her safe deposit box, but she would need $1,500,000 to buy the house she is currently sitting in. What happened?

The $24,000 have lost 98.4% of their purchasing power. Where did the purchasing power go? Who took it? I will answer those questions in another article.  But the value is gone, and it did go somewhere.

For the $24,000 “invested” in 1965 by my Mom to be considered a real “investment” they would have to return more purchasing power in 2018 than they did in 1965. But as we can see this did not happen. All my Mom’s investments did was tread water, or maintain value, while the US dollars became worth less and less.

Think about the people who in 1965 could not afford to put their dollars into gold, stocks, or housing. What meagre savings they may have managed they kept in cash. Someone took 98.4% of those savings from them between 1965 and 2018. Is it not apparent why the poor remain so? Someone took 98.4% of what they may have saved.

Those who could put their dollars into housing, gold, or stocks at least maintained their purchasing power, but the poor basically lost everything.

But it gets worse.

If my Mom sells her house in 2018 the state of California and the federal government will take 1/3 of the value of the sale. Roughly 13.3% will be taken by the state and 20% will be taken by the federal government.

If my Mom sells her house for $1,500,000, the government will take $500,000 leaving her with $1,000,000. (let us ignore section 1031 housing exchanges for now)

That $1,000,000 will **not** buy a similar house in the same market!

The government takes 1/3 of the purchasing power that was stored in my Mom’s home. And it is the same for gold and stocks. The government will take 1/3rd.

My Mom, in 1965, was faced with the following choice:

1) Keep $24,000 in a safe deposit box and lose 98.4% of their value (purchasing power) by 2018

2) Buy a house, and hand over 1/3 of the value (purchasing power) to the government in 2018

Buying the house, gold, or stocks is a far better value. They are more or less a 50 times better value.

But in all cases my Mom is not even treading water. The choice was lose 1/3rd or lose 98.4%.

In none of the cases did my Mom increase her wealth.

None of the options were “investments”. In all cases my Mom lost purchasing power.

Why does everyone call these things investments?  I would say mostly because they are ignorant. They have no idea what they are talking about.

The demonetization of gold and silver

Prior to 1934, the government did not tax so called “gains” on gold and silver.

Is it apparent why the government had to make this change?

If my Mom had put her 1965 dollars into gold, the gold would have protected her wealth (purchasing power) **and** would **not** be subject to tax. This is why the government had to “demonetize” gold and silver.  “demonetize” is just a code word for “tax”.  The government had to tax gold and silver otherwise every smart American would have transferred their wealth into gold and silver where the government could not get at it.

Prior to 1934 gold and silver protected everyone’s wealth from confiscation, theft, taxation, whatever you want to call it,  by the government and others. Gold and silver did not experience loss of purchasing power and the government did not seize 1/3rd of it when you “sold” it.

The system of expropriation (theft) that we live with today was not an accident of some well intentioned people designing a system that went wrong or was exploited by bad people.

The system was designed by bad people to rob you of your wealth.  You may disagree as to their motives, but you cannot disagree  as to observable facts like the numbers in my Mom’s chart above.

The removal of gold and silver as money is what allowed the theft to be hidden. Reinstating gold and silver as money (eliminating the taxes on gold and silver sales) would make glaringly obvious what is going on. Some of the US states have recently re-monetized gold and silver.

Even the US Constitution is on our side:

US Constitution, Article 1, Section 8

    [The Congress shall have Power] to Coin money ...

US Constitution, Article 1, Section 10

    [No State shall] ... make any Thing but gold and
    silver Coin a Tender in Payment of Debts

You might want to point out that housing, at least in my Mom’s example, was better than gold and stocks at preserving my Mom’s wealth (well at least 2/3rds of it).

Real estate has a draw back that gold and stocks do not.

Real estate is taxed in the state in which it is located. Gold and stocks are taxed in the state that you are living in when you sell them.

That means my Mom could move to Idaho and sell her gold and stocks with a 7% tax rather than the 13.3% imposed by California.

Gold and stocks are portable wealth, but real estate is not.  You can even take gold and stocks abroad.

Am I going to try and sell you gold at this point? No. Gold, stocks, and housing are all pretty much the same at protecting your wealth at least over the 53 years of my Mom’s case.

Over the last 4000 years gold and silver have been the single best method of preserving wealth.  Housing works somewhat, and fiat currencies are terrible. Most fiat currencies (like US dollars) are worth zero over 4000 year periods. Most are worth zero over periods as short as 200 years.

Why does everyone hate gold today? Because they have not read this article, they have no idea what is really going on, and they have no idea what they are talking about.

The one take away from this article is that you should not keep your wealth stored in plain dollars, you should store your wealth in stocks, gold, or housing. Maybe you should store your wealth 1/3rd in each?

You should also vote for people who will “re-monetize” or stop taxing so called “gains” in gold and silver.

I promised up above I would talk a little about the people stealing your wealth.

Why they are stealing your wealth is because they can and you are allowing them to do it.

There is something that is even better to preserving and growing your wealth than gold, stocks, and housing.

That is a sound money and  honest government. Government is actually the single biggest risk to your wealth preservation.

To further understand the value of sound (honest) money read  why-we-create-sound-money-and-governments-wreck-them.

To make a better government:

Confusion and Getting lost in the details

The number one tool of the people stealing your wealth is confusion.

To counter the arguments I make in this article, your enemies will bring up things like section 1031, or inflation, or this or that short period of time.

They might mention how people lost everything in the great depression.

No one who held their stocks, housing, or gold through the great depression lost anything.  The chart about my Mom’s investment options works just as well if you start in 1918 and look at today.

Was there a a year here or there that you could have lost a lot if you sold?  Yes there are.  Just do not sell then.  You are selling to the very people who have arranged to rob you.  Just keep in mind, even with those losses they do not compare at all to the 98.4% lost in keeping dollars.

It is thinking in the short term that gets you in trouble.  Look how many times in history a 50% drop in the US stock market has completely recovered with in a  decade.  It is the same with housing.

Do not sell during a panic.  Do not listen to the lies and confusion being proffered by just about everyone.

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