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House
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I know a few here read the Barefoot Investor and can imagine a few more can probably relate to the story about the wife, especially when their "investment" has lost money. So own up, who is it?
Faults in the Vault
(Not Silver)Peter was in strife with his wife. I knew this because she emailed me for advice using the headline 'My Husband Is an Idiot'.
A few years ago, Peter, in his mid-forties, opened a Self Managed Super Fund (SMSF) with his wife, and invested the lot in gold. Today they've lost about $35,000, and his wife -- a nurse, who dutifully transferred out of a low-cost industry fund -- is livid. So I called them up, and managed to speak to them together.
This week the gold price touched six year lows. Peter, however, was having none of it: "The US Federal Reserve is printing too many dollars. The entire financial system is one giant Ponzi scheme, built on the back of fiat [paper] money. When it collapses, people will revert back to the one true store of wealth: gold."
"He subscribes to this stupid email newsletter that talks endlessly about impending economic Armageddon ", says his wife. :lol:
"... and they correctly picked the Global Financial Crisis", Peter interjects.
Being the marital umpire, I gave Peter a penalty: a quick search of the interwebs suggested that his newsletter gurus had been warning about a crash for years (and, just like a busted clock, they were bound to be right -- eventually).
Should You Buy Gold? When you see a gold bar in person, it's easy to see why it's transfixed people throughout time -- and I've seen more gold in the flesh than most people. yet the truth is, it's also been a terrible investment.
Famed Wharton finance Professor Jeremy Siegel keeps long-term (inflation-adjusted) returns of various asset classes, dating all the way back to January 1802. He found that if you put one US dollar under your bed in 1802, it's purchasing power would have been eroded to just 5 cents by December 2013.
What about if you'd invested that dollar in gold? The Professor says it would be worth $3.21 today.
What if you'd invested that dollar into the share market? It would have compounded to a staggering $930,550. (Forget specifics, hindsight is wonderful)
It makes sense when you think about it. Other than looking pretty, gold doesn't actually produce anything. You can't rent it out, and it pays no dividend. There is no compounding.
The only way you can make money is by getting someone to pay more for it than you did.Stocks, on the other hand, are a collection of the businesses that compete to sell us our Model T Fords, our iPhones and our Big Macs. And over the past 200 years, it's been a wildly successful ride: we've gone from horses and carts, to flying through the air, to walking on the moon.
Yet there is a cheap, simple no-brainer way to ride the coming revolution: just buy a low-cost, tax-efficient index fund that tracks the 500 largest companies in America -- otherwise known as the S&P 500 (it can be bought like any other stock on the Australian Securities Exchange under the ticker IVV.ASX).
As new businesses emerge and grow in value, they're added to the portfolio (read: Facebook), in the same way that as existing stocks drop off (read: Kodak), they're deleted.
A few years ago, Warren Buffett (who famously views gold as a 'stupid investment'), announced in his will that, on his death, 90 per cent of his wealth is to be invested in an S&P 500 index fund for his wife.
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