Earlier quoted context omitted.
Stocks are meant to be an investment vehicle, gold is not. The difference is, in an inflationary environment, stocks get murdered in real terms. That was the first line of my initial post in this thread. The problem with stocks on the smooth sailing point, is that you can have a company that goes bankrupt, and plenty do over 30 years or more. You should look up the rather shocking numbers on how many publicly traded…
> in an inflationary environment, stocks get murdered in real terms. is there any evidence to back this up? is a logical reason why this would be true? i certainly can't think of any > Gold does not go bankrupt, and it will not go to zero yes, in this respect, stocks are riskier than gold. if minimizing investment risk is what you want, maybe you should buy gold, or maybe TIPS. however, most people also care about re…
A quick glance at the Dow chart from 1960x to 1983x tells that story very well.
Gold did extremely well during the inflationary late 1960s and the 1970s. Stocks did horrifically terrible in the 1970s (which is where Buffett made a lot of his killing in the market, buying dirt cheap). Right up until the point where Volcker broke the back of inflation in the early 1980s, at which point stocks had a stellar run while inflation was relatively tame.
The reason this happens is: inflation hammers almost every core ingredient of an economy. It kills real savings, because the rate of return on cash can never outrun inflation. It pushes up of the price of commodities that producers need, while eroding wages capabilities for the bottom 90% (the rich can shield their wealth from inflation, poor can't shield their wages). That makes producing things more expensive, while simultaneously limiting the ability to raise prices on consumers that have less real cash to spend. So it squeezes companies, and it erodes real growth.
If you have a 5% to 10% net profit margin, and you're growing at 5% to 10% per year, which are perfectly common rates for most businesses - if you run real inflation at 5%, you're making it radically harder to survive random risk events in the course of business, you're removing critical points of profit and the ability to stick back cash for a rainy day. In effect, that hammers the stock market because it's an inter-connected economy in which IBM or Microsoft or Dell or Cisco all depend on small businesses. And so on and so forth.
There are now a lot of ETFs, you still have to pick among roughly 1,000 of them.