phantom0308 wrote: ↑Mon Aug 02, 2021 1:40 am
It’s been said over and over again, but I guess it needs to be repeated. Gold isn’t an inflation hedge.
Nor are stocks
Whilst inflation might be considered as one form of tax
http://warrenbuffettoninvestment.com/ho ... -investor/
The arithmetic makes it plain that inflation is a far more devastating tax than anything that has been enacted by our legislatures. The inflation tax has a fantastic ability to simply consume capital. It makes no difference to a widow with her savings in a 5% passbook account whether she pays 100% income tax on her interest income during a period of zero inflation, or pays no income taxes during years of 5% inflation. Either way, she is “taxed” in a manner that leaves her no real income whatsoever. Any money she spends comes right out of capital. She would find outrageous a 120% income tax, but doesn’t seem to notice that 6% inflation is the economic equivalent.
Another form of tax is direct taxation itself. Mid 1930's to early 1980's and for some taxes never declined below 70%.
https://bradfordtaxinstitute.com/Free_R ... Rates.aspx
Since the bust of the 1970's/1980's, there's been a compensatory boom and as part of that saw the introduction of inflation bonds along with low/no taxation options (and reducing costs, historically market makers regularly set spreads as wide as 10% or more). For a individual that retired in the mid/late 1960's and saw all of their savings/investments wiped out by combined declines and withdrawals, the 1980's onward 'compensation' was of no use to them.
There's also a element of survivorship bias reflected into historic 'average' stock gains. Dow and Jones devised three indexes of which only the better performing remains dominant. Investors at the start could not have predicted which of the three that would be. Index methodologies have changed, directed towards the "better" mechanical method, that is then taken and back-run as a "guide to historic 'average' stock investment rewards".
The market in having wiped out some in the 1960's/1970's compensated in the 1980's and 1990's ... into 'over-compensation' levels of the late 1990's, from where it took a breather, flatlined over the 2000's (0% real stock returns). First via a dot com bubble burst and then the 2008/9 financial crisis. The 2010's were another compensatory decade for the 2000's lost decade, such that combined 2000 and 2010's saw stocks provide 4% real annulized reward, before taxes. So far the 2020's is indicating that compensatory trend might be continuing, over 20% annualized real gains since the start of the 2020's, but still early days yet. There are the risks that inflation as a tax, combined with regular taxes could again revert to being much higher than seen since the 1980's.
Hard US$'s and most if not all other currencies tend to be worse than gold, you have to invest those currencies in order to potentially offset taxes such as inflation and regular taxation. Stocks are marketted by the worlds richest sector - the financial sector that is well adpt at such marketting and value extraction. How well or not having to invest via stocks and bonds succeeds in offsetting inflation, taxation and costs is very subjective. A lump of metal that broadly offsets inflation where once purchased may have no further ongoing costs or taxation applied (pays no interest/dividends) could I suspect have charts produced that suggested superiority over stocks and/or bonds net of costs/tax (including inflation) returns.
It's not unreasonably given the distinct differences to diversify across both. Two extremes of stocks and gold that if barbelled combine to a central bullet. Potentially broadly better than either alone.
As a example of some of the trickery the financial sector plays, as a UK investor if I buy a low cost US stock index tracker then that fund will typically benchmark to the S&P500 index. The benchmark index provider however includes small print to the effect that's a net index of 30% US dividend withholding taxes. As UK/US tax treaty reduces that to 15% however then many funds relatively outperform the benchmark, but then they deduct their fees/costs and may even lend shares such that overall a 'good' index fund will look like its tracked the benchmark S&P500 relatively closely. But that's still with 30% of dividends having been taken. Less of a issue nowadays where high dividend taxation induced many firms to retain more such that broad dividend yields declined from 4% to 2% type levels, but even at 2% that's a 0.6% overhead. And that's for the most cost/tax efficient. There are mutuals/investment-trusts still around that levy north of 1% costs/fees, in some cases 2% or more. Jack (Bogle) cited a example of 8% reward (nominal after costs) conceptual versus 6% actual figures, along with a assumption of a 50 year total investment lifetime. Differences of 47 gain factor versus a 18 gain factor to suggest that average investors took on 100% of the risk whilst Wall Street endured none (midde man), and where investors were paid less than 40% of the reward (18 / 47). Historically that was a conservative estimate as taxes and costs were potentially much higher.
Stocks are presented as a no-lose type choice, by the sector that would rather you invested in its products/services. What if however the picture they painted wasn't entirely accurate and instead stock rewards simply reflected the risks, that combined broadly compared to other assets such as gold? If both broadly 0% real, then two assets with the same positive or zero reward expectancy that are volatile and 50/50 of both combined with rebalancing yields a better actual reward than either alone, especially when the two have no/inverse correlations.