What investment will keep up with inflation that is not the stock market? Gold?

[PandaBear]

One thing to consider about physical gold, it has value as long as there is someone on the other end that will take it as payment. That part is always assumed but if you walk into a store with a 1oz bar of gold, how will they make change?


In some countries gold is accumulated by the purchase of chains. One could see how that chain could be used for purchasing just by removing the links required.

Are you investing or are you using gold as a currency? If you are investing are you going to buy a fraction of a bar of gold? That's just basically chicken poop you should round off to a whole oz or not. You are not going to go into a general store to buy milk with gold bar back in the days either.

 

[dareo]

Gold is about preserving value more than obtaining returns. Having some physical gold as a small percentage of wealth won’t hurt and will be huge in a worst case scenario.

Real estate in a primary residence is a win but speculating on rentals may not do much more than inflation matching unless you can really buy the dip. People buying 3 cap rentals right now are taking a lot of risk for the low reward. Historically real estate has done worse than inflation for many periods of time, and better in others. You have to time the market cycle with some accuracy.

To keep up with / beat inflation you have to take risks. Index funds over long periods of time beat inflation. Why not stock market?

Common answer: “It will crash and i will lose my money!”
-it will go down at some point but so will assets like real estate. If a dude has 12 favorite stocks and 12 rentals, and sees his favorite stocks trading cheap, that dude might sell properties to buy the dip.

Risk and reward go hand in hand. Risk free investments will take you backwards slowly in purchasing power. But maybe being a “Keep What I Got” is best for you.

 

[ekrampitzjr]

There is a real issue with gold overseas, and one day it could be a problem here: counterfeit "gold". Scams with painted lead passed off as gold have happened in the past, but a Chinese version uses bars of tungsten, which has the same density as gold.

And that brings up a hassle with gold transactions: the gold must be assayed to ensure it is the real stuff. Getting an assayer ain't cheap. Nothing involving precious metals is—big shock, right?

Also understand that many of the people (not here, but on other sites) pushing precious metals are talking about doomsday situations as a reason to keep metals. The reality, briefly, is that owning gold and silver is no substitute for proper preparation for bad times, you can't eat metals, and if things are bad enough, no one will accept your gold for his survival supplies. Just remember this.

We have seen that precious metals are at best an imperfect store of value. They haven't kept pace with inflation. Big spikes in value are always "right around the corner", but never quite seem to happen. And if things really hit the fan, they are of very limited use. Aside from "junk silver" old coins, I don't see the point of investing in precious metals.

 

[PimTac]

Are you investing or are you using gold as a currency? If you are investing are you going to buy a fraction of a bar of gold? That's just basically chicken poop you should round off to a whole oz or not. You are not going to go into a general store to buy milk with gold bar back in the days either.

Good question. I have never considered gold as a investment. It’s a hedge. When I do buy it I limit it to 5% of my portfolio assets, much like a single stock.

 

[Astro14]

I have a 4% rule* for individual stocks in the portfolio. A 5% rule makes sense for something like gold.

We have bought gold in the past. It was late summer 2011, I think, could’ve been 2010, when my wife called me from work and said, “we need to buy Gold”. As an intel officer in the Navy, she watches world events. We bought GLD, the ETF, for the equivalent of about $1100/ounce. We sold it a few months later for $1400/ounce. A nearly 30% gain in a few months.

Gold went up to $1800 as the year went on. Did I feel bad? Nope. We made 30% in a few months. A very nice return.

The gold market cratered the next year. Down to below $1000. Had I held on and been greedy, we would’ve lost money. I was glad to be out. Gold didn’t cross the $1400 threshold again for nearly a decade. It’s at about $1800 right now, so, if you had bought at the peak ten years ago, you would have a zero rate of return for a decade of investing. That’s a terrible return.

That‘s why GLD isn’t in my portfolio now.

However, the physical metal, in the form of coins, like double eagles, or krugerrand, may end up in our possession in the near future as we look for ways to transfer a bit of wealth to our children outside of estate taxes. We have a good estate attorney, and instruments in place appropriate for our position and desires, but some physical property like coins can be a simpler transfer than financial assets and property like real estate.


*The rule: no one stock should exceed 4% of the total portfolio value. This limits risk, should a stock crater, as well as limiting upside should you have a stock, like AMZN, that goes on a tear. At the moment, about 40% of our total portfolio is in individual stocks. The rest is in mutual funds, the preponderance of which are S&P 500 Index funds.

 

[JeffKeryk]

We have bought gold in the past. It was late summer 2011, I think, could’ve been 2010, when my wife called me from work and said, “we need to buy Gold”. As an intel officer in the Navy, she watches world events. We bought GLD, the ETF, for the equivalent of about $1100/ounce. We sold it a few months later for $1400/ounce. A nearly 30% gain in a few months.

So 30% before taxes? Either way, a nice problem to have.

"*The rule: no one stock should exceed 4% of the total portfolio value."
I call BS, depending...
Schwab has been after me to balance out my portfolio, as I was awarded golden handcuffs from my company. Year after year, as I had authored a software application that was the corporate forecast, revenue recognition tool and manufacturing Master Scheduling tool.
I did sell a little, which turned out to be stupid.
Remember, "Don't put money into a depreciating asset." And, "Put money into an appreciating asset."
Schwab advisors finally gave up hounding me. I think everyone knows SEMI has been a freaking gold mine.
Selling a bunch based on Fidelity's strong recommendation was why I fired them and consolidated under Schwab.

 

[UncleDave]

However, the physical metal, in the form of coins, like double eagles, or krugerrand, may end up in our possession in the near future as we look for ways to transfer a bit of wealth to our children outside of estate taxes. We have a good estate attorney, and instruments in place appropriate for our position and desires, but some physical property like coins can be a simpler transfer than financial assets and property like real estate.

Unmonitored transaction and transfer is a definite upside to physical metal.

When it comes time to purchase if looking at the list of four nines coins, whatever has the highest face value at the time of purchase becomes a logical choice if somehow in the world someone discovers a mountain made of gold and the metal value plummets, you can never drop below the face value on the coin.
At the time of my coin purchase of 350 I could get a face value of 200 " shillings".

 

[UncleDave]

If you live in an area with high electricity costs solar can be a good investment as well.

 

[PandaBear]

4% rule, or whatever you use up to 50 / 100% or whatever, is really something very personal. If it helps you sleep at night good for you, you cannot put a price on that, but I would be very concerned about one of my 25 baskets drop and broke the eggs, just as much as all my eggs in 4 baskets and drop one of it.

Regarding to physical gold as asset transfer, is that tax evasion? I would be surprised if IRS don't already have a way to tax you or detect that kind of actions.

 

[PimTac]

Regarding to physical gold as asset transfer, is that tax evasion? I would be surprised if IRS don't already have a way to tax you or detect that kind of actions.

On physical gold or silver I don’t see how. Bartering is a natural alternative when currency is not trustworthy.

If the government is going to police people trading vegetables grown in their garden for other items then we would have much bigger problems. As a example, in WW2 ration coupons were distributed to households. People in need of certain items would exchange coupons as a form of barter. My grandparents ran a bakery. Their children did without shoes and clothing so they could get more flour and butter.

 

[JeffKeryk]

You are supposed to report income. Bartering is converted to dollars at fair market value and is taxable, even if you don't get a penny in cash.

 

[Rmay635703]

Gold funds are buying paper! Buy real gold if that is what you want to do.

You are supposed to report income. Bartering is converted to dollars at fair market value and is taxable, even if you don't get a penny in cash.

Most items bartered are of questionable value and one would argue neither party is gaining more than they loose

Ears of corn can be had for 19 cents if I trade them for a curb couch which is worth negative -$50 to dispose of have I made a gain that could be considered income?

-nope

 

[dareo]

Regarding to physical gold as asset transfer, is that tax evasion? I would be surprised if IRS don't already have a way to tax you or detect that kind of actions.

$10,000+ transactions are recorded at purchase and Estate taxes only kick in at high net worths, i believe $11 million dollars or so.

If a theoretical rich family bought 20 million in gold it would be documented somewhere. They die and claim no estate taxes yet the kids somehow are selling pounds of gold and depositing the money in greater than $9,999 amounts in a given window of time they could be figured out.

If you are in a position to be transferring weath great enough to be subject to estate taxes, try and help your kids out while your still alive. Enjoy that money before the death tax takes some.

 

[JeffKeryk]

Most items bartered are of questionable value and one would argue neither party is gaining more than they loose

Ears of corn can be had for 19 cents if I trade them for a curb couch which is worth negative -$50 to dispose of have I made a gain that could be considered income?

-nope

There was a comment about barter as taxable income.
I am stating the law. How people choose to follow it is their business.
I think we can agree gold is not of questionable value.

And yes, what you received is taxable in fair market dollars.

 

[dareo]

Most items bartered are of questionable value and one would argue neither party is gaining more than they loose

Ears of corn can be had for 19 cents if I trade them for a curb couch which is worth negative -$50 to dispose of have I made a gain that could be considered income?

-nope

A curb couch would be considered free right? Then the market value is zero. However if you were trading up in value and reselling what you traded into then it would be taxable. Trading corn for a personal use couch that is not being sold is just spending your hard earned corn.

 

[PandaBear]

I remember there was a loophole the law tries to close that was for some sort of equal value exchange, and was used by large corps to trade assets with each other or with cash, so you can "postpone" the tax till later.

Of course, eventually it will be taxed, but you compound your growth against inflation.

 

[JeffKeryk]

If you are in a position to be transferring weath great enough to be subject to estate taxes, try and help your kids out while your still alive. Enjoy that money before the death tax takes some.

You can gift $15,000 per person per year tax free before gift tax kicks in. Don't ask me how I know.
Estate tax, aka inheritance tax or death tax, is for estates with a fair value (not purchase value) over $11.7M.
The top rate is 40%, which I think is flat out robbery, especially for people who built their own fortune vs those who inherited.
Of course, a surviving spouse is exempt from estate tax.

A few states have estate tax; luckily CA is not one of them.

 

[GON]

See a few mention real estate in this thread I am not sure that is a match, especially if inflation causes interest rates to significantly rise.

What I think may be a good investment that hedges against inflation is farm land. I do think farm land that produces cash crops differentiates itself from real estate.

The USA's second wealthiest person, Bill Gates has been putting his money in farm land; not in high tech. Like him or not- he is a very savvy person when it comes to money.

 

[JeffKeryk]

If you live in an area with high electricity costs solar can be a good investment as well.

Absolutely. It immeadiately increases the value of your asset (your house), and after break even it is all gravy.
Does anyone think the cost of electricity is going down in California?
We are already have some of the highest energy costs in the nation after the Great State of Hawaii.

One tip: make sure you buy enough production. Some owners are getting bit at true up because they undersized their solar project.
Make sure you know how it works and what you are buying. I upped their proposal for 2 reasons:

1. Did not want to get surprised at true up and figured my electricity use would increase.
2. Thought we might buy an EV one day.

 

[Astro14]

So 30% before taxes? Either way, a nice problem to have.

"*The rule: no one stock should exceed 4% of the total portfolio value."
I call BS, depending...
Schwab has been after me to balance out my portfolio, as I was awarded golden handcuffs from my company. Year after year, as I had authored a software application that was the corporate forecast, revenue recognition tool and manufacturing Master Scheduling tool.
I did sell a little, which turned out to be stupid.
Remember, "Don't put money into a depreciating asset." And, "Put money into an appreciating asset."
Schwab advisors finally gave up hounding me. I think everyone knows SEMI has been a freaking gold mine.
Selling a bunch based on Fidelity's strong recommendation was why I fired them and consolidated under Schwab.

You are a unique case.

Your company stock has been great.

But as the employees of Enron and Worldcomm found out, a large percentage of ones portfolio in one stock carries risk.

Company stock has the double risk of your paycheck being tied to it as well.