I am presenting to a group of 401k participants outside of Washington D.C for a review of their investment line-up. A person sitting near the front has a comment/question: “a friend of his yanked all the money out of his 401k plan to invest in Gold and made a killing, it turned out much better than if he had stayed in the 401k plan.” I am bothered by this.
It certainly can be a true story: maybe this 401k participant pulled out of the 401k and bought gold in 2006 (at 636) then sold it in 2010 (at 1420) avoiding the financial crisis’ of 2007 and 2009. (Although I doubt that happened, it is certainly possible). So why does it bother me? It bothers me because gold is not an investment. Gold is speculation. Listen to Warren Buffett, one of the greatest – if not the greatest – investor of our generation:
“(it) gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility, Anyone from Mars would be scratching their head.”
This person did not invest in gold, they speculated in gold. Gold is a lifeless asset, purchased only in the hope that someone will pay more for it in the future which is the definition of speculation. No dividends, no earnings, no productivity. It bothers me because someone is confusing speculating with investing.
And look at the CPI adjusted returns of gold from 1800 -2010.
A real return of 0 in 210 years! If you want to speculate, in gold, bitcoin or anything else, go for it. But remember you will have to be right twice: getting in at the right time and getting out at the right time. You can’t stay in for the long run because there is no real return. And in the long run, which is what matters most, investing beats gold every time.