Should You Invest In Gold

It’s funny how times change. A few years ago, the housing bust put a lot of people in vulnerable situations. I remember these gold commercials constantly running. “Trade in your gold for cash!” Remember those? I’m sure they made a pretty penny melting down all that old jewelry. Now the commercials are the opposite, they want to sell us our gold back! Is it worth the investment? How good is gold, really?

Historical Performance of Gold

When analyzing the historical performance of gold, it really depends on the timeframe you look at. In periods where there have been market crashes or recessions, gold performance looks really good. When the economy isn’t a raging dumpster fire, the stock market returns can dwarf gold performance by 4 to 1. During my short lifetime, I can remember when we saw gold start skyrocketing to its eventual all time high in 2011 of almost $2,000 per ounce. Since then, the market has recovered and gold is now around $1,300.

Ultimately stocks will outperform gold. You can put your blinders on and pick specific timeframes that make gold look better than the rest of the market, but all that glitters is not gold. There are many different data sources that show how gold performs against stocks over the long run, and it really doesn’t compete in most of the categories. Below is a chart showing real returns for various indices using a $10,000 initial investment.

Total Real Return on $10,000 Initial Investment
Credit: Stocks For The Long Run by Jeremy Siegel

The big downside of gold is it doesn’t grow. It doesn’t earn. It’s a commodity that just sits there, looking shiny. That doesn’t mean it isn’t useful. There has always been a demand for gold throughout history for various purposes. But stocks, unlike gold, have the potential to grow into something bigger. Companies can increase their assets, they can go make profits and return them to you in the form of dividends. Gold can not. 

Gold 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 watching from Mars would be scratching their head.

Warren Buffett

But stocks are so risky! Sure, stocks can be risky. But so can gold! The difference is stocks tend to bounce back relatively quickly. Gold can have dismal performance for decades. Since its high in 2011, gold has been declining, while we have been on the longest bull market in history. Imagine having sunk all your money into gold while the markets have been this hot, all the while your gold has been declining and not paying you any returns at all.

Prepping for the Apocalypse

So if stocks are better, why do I buy gold? Gold is a hedge. A safeguard to preserve your wealth, not increase it. If you had 10,000 ounces of gold a few hundred years ago, you would have been rich. If you have 10,000 ounces of gold at today’s price ($13M), you would still be rich. Gold retains its value, where fiat currency such as the dollar does not. When markets seem volatile, investors retreat to gold to try and preserve their current wealth and avoid taking the market hit.

Precious metals, gold especially, have always held value. It’s very popular in jewelry, but also has industrial uses in manufacturing electronics. Gold was also used as currency for centuries. The American Dollar was backed by gold reserves, for a short time. In the absolute worst situations, the type of situations we don’t believe are possible in this great country, gold would be a very valuable asset. If you look at Venezuela right now, their currency is so inflated that it’s seen covering the streets as trash. I can promise you will never see gold covering the streets! In the event where the fiat currency is no longer valid, everyone will go back to barter trading. Some chicken eggs for a loaf of bread and stuff like that. What is the next step up from barter trading? Gold and silver coins.

Venezuela's Money is Trash
Imagine seeing gold coins in the streets. Never going to happen!

You can buy gold in various ways. I like physical gold that I can hold in my hand. Read here to see how the major institutions have manipulated paper gold prices. If you buy gold as a safeguard for terrible situations, don’t you actually want to be able to collect your asset in the event those situations come to pass? Imagine telling the bank you want your gold mailed to you, and they respond that it hasn’t been mined yet, or that you don’t technically own it. No thanks. I want my backup plan mailed to me immediately. I like gold in small denominations, like tenth oz and quarter oz. Smaller increments make it easier to trade and use as a currency if I had to do that, which is why I buy it in the first place. I don’t think gold is a good investment, but it’s a good backup plan, so I keep buying it and storing it in my gunsafe with all my other plan B’s. When the zombie apocalypse comes, I’ll be ready!

Do you own any gold? What do you think of gold as a major part of your investment strategy? Share your story below!

The First Step in Personal Finance

Whenever society talks about wealthy people, like the Jeff Bezos and Bill Gates of the world, we talk about how much money they are worth. “This man is worth 100 gazillion dollars!” the news anchor screams through the television, salivating from the mouth. That number is referred to as net worth. Net worth is the sum of all your assets and liabilities valued at current market price. It doesn’t mean the person has 100 gazillion dollars in their checking account. In fact, if they were that bad with money, they wouldn’t be worth that much in the first place. Since wealthy folks keep most of their assets not in cash, when the price of those assets go down, you can bet their net worth does as well. Read here to see an example of how Jeff Bezos net worth can fluctuate in the billions without him even spending a dollar.

The Magic Number

Now here is what’s really crazy about net worth. Most of us mere mortals know the roundabout net worth of famous, wealthy people we’ve never met before (like when Kylie Jenner hitting $1B was trending on Twitter), but we don’t even know our own magic number! Isn’t that wild? Money has so much impact on life, and yet I bet you can ask your friends if they know their net worth within about 1,000 bucks and you would get mostly blank stares. Answers that include “Oh I’m broke, so probably zero” aren’t sufficient. Net worth is a number, so if your friend says zero, it’s probably much lower than zero because it’s negative! Do you know your net worth? Check out how you stack up against the rest of America in the table below.

AgeMedianAverage
< 35$11,100$76,200
35-44$59,800$288,700
45-54$124,200$727,500
55-64$187,300$1,167,400
65-74$224,100$1,066,000
75 +$264,800$1,067,000

The finance gurus out there would disagree with me when I say that the first step in personal finance is to calculate your net worth. But it’s the truth. This is where my journey started and if I hadn’t done it, I might have continued down the path to financial ruin. Are budgets important? Well, obviously. I think that is where most people try to start. Budgeting is a quick follow up to this step, but I still think you have to know exactly what assets and liabilities you have out there before you can accurately decide on a budget. Especially in our generation where everything is automated. Have you ever had a credit card on autopay for the minimum payment, and forgotten about it for years? I’ve done it and it’s brutal. Recognizing that you have these issues is going to impact how you decide to make your budget, so isn’t it more important to make sure you have all your information correct first?

What’s great about the modern world is you don’t need to calculate your net worth by hand, although it’s totally feasible. There are plenty of tools out there, both free and paid, that can do it for you. I tried a few out before settling on Personal Capital, which is free by the way, and I’ve been using it ever since. I plan on writing a detailed guide on all the features it has and how it can help you be more responsible with your money, but for now you can just Google search them. Net worth isn’t a stat exclusive to the super wealthy. It is critical to one’s financial education to understand how this number gets calculated and how your daily decisions make this number go up or down.

The Truth Hurts

When talking about money with friends, my favorite angle to dive into is the psychology behind why people do the things they do, or don’t do. Knowing your net worth is not some monumental task, and yet people refuse to do it. Why? I really do believe it has to do with emotional and psychological factors involved in the process of discovering your magic number. I get it. Confronting an uncomfortable truth is never easy. However, your number doesn’t change or go away just because you don’t acknowledge it. Haven’t you heard the adage, “if you don’t measure it, you can’t improve it”? That applies here. Besides, just because you don’t know what your net worth is, doesn’t mean the bankers and credit agencies are in the dark too! They can pull your credit report to find out your liabilities, and generally will ask you to list your assets whenever applying for a substantial loan. 

If you haven’t read the about me page of my blog, you should check it out. If you already have, you’ll know that part of my story is how I had terrible spending habits and was financially irresponsible. It’s fitting that this is my first post about money, since this is exactly what I did to turn my financial life around. In my late twenties, there were some things going on that made me pause and take a deeper look at my finances. My wife and I were both settled in our careers with nice paying jobs. We could afford to buy pretty much what we wanted, when we wanted. Clothes, vacations, furniture, eating out, etc. We still had some credit cards, and loans, but the minimum payments weren’t enough to slow us down from buying the stuff we really wanted! By all accounts, I thought we were doing well.

I don’t remember how I came to find out about Personal Capital, I just remember downloading it on my phone because I wanted to see how good we were doing. After plugging in all of our bank accounts, loans, credits cards, retirement accounts, and a mortgage, the result came back and shocked me to my core. Our number was big, and very, very NEGATIVE!!! How could this be? At this point in my life, I felt like we had plenty of money and were living comfortably. The reality was we were in debt over $175K. It was a lesson learned, maybe a bit late, that great income does not equal great wealth. I was determined to change my number.

There’s no get rich quick scheme involved in how I approach money. Building anything of value takes time and discipline. Your wealth is no different. But you can’t get there unless you are willing to take the first step and confront your situation. I did. It wasn’t particularly rewarding, either. I imagine for most people it won’t be. Looking back on it, I wish I had done it sooner, but I am glad that I did it at all. It took us a few years to straighten things out, but I’m glad we did before things got out of control.

Have you started tracking your net worth? If so, when did you start? Share your story!

A Different Journey

How do you know when it’s time to do something new or different? Does it come to you in a dream? Is it a spur of the moment idea? My new journey was staring me in the face for years and I didn’t take notice. Or maybe I did and didn’t know what to do with it. The hardest part of any new endeavor is taking the first step. It’s easy to overanalyze things to the point of psyching yourself out of doing anything at all. I’ve done this my whole life. So why is this different? What made me follow through on this and not the other options over the years? Well, I’m not totally sure yet. I think part of it is just letting go of the doubts and pushing forward. Less expectations, less pressure. Like the Nike ads say, “Just Do It”.

Why blog about personal finance?

Whenever you plan to sink a good amount of time into something you should make sure, at the very least, it’s something you enjoy doing. I’ve enjoyed creative writing since I was a kid. I’m not talking about writing 10 page term papers on some book you were forced to read. Those were awful. But I sure did love the “write about whatever you want” papers. While my friends excelled at Math, I impressed my English teachers. Even my handwriting was really good. (Do they even teach that anymore?) Fast forward many years, where I graduated from college with a Computer Science degree, and now I’m the one doing math and tech work all day. So what happened to my creative outlet? Since I don’t have one anymore, I decided to create my own! Admittedly, I’m extremely rusty. Time should fix that. I’m going to be blogging about money, a subject I obsess over daily. Every now and again I might throw in a life update, but for now if it makes dollars, it makes sense.

I can’t speak for what today’s public education system is doing, but what I do know is most millennials never had a personal finance class in high school. Or even college for that matter. It’s pretty wild when you think about it. How many years do we spend going through K-12, but apparently there was never time to talk about the one thing everyone uses on a daily basis? I sincerely hope the school systems have remedied this, but that doesn’t fix the past. Millennials got screwed. Big time. Financial education is lacking in our generation and it shows. Record levels of student loan debt, car debt, and credit card debt. The news tells us we are the first generation in American history that is poised to be worse off economically than our parents. Ironically, we are the generation that needed financial education the most! Part of why I want to do this is to create a knowledge base where both friends and strangers can come to learn and critically think about things we should have talked about a long time ago.

Since I started having kids, I’ve thought about how I’m going to pass down my knowledge. I don’t want my kids to make the same mistakes I did, especially if I’m the one giving them the money to do it! At one point I even thought about writing everything down in a journal, and then instructing my kids to read it and keep it in the family like an heirloom. What a disaster that would have been! Instead I’ll store my ideas here, and they can browse them on their iPhone 20 in a few years time. An important aspect of building wealth is keeping it. My kids are an important piece of that strategy.

What I have to offer

There are plenty of resources out there if you want to learn about money. But what I find too often is information that falls into two categories: gurus and gimmicks. The gurus are the specialists, who often have professional finance backgrounds, preaching about doing things “the right way”. If you want charts and data on the status quo, like portfolio allocation by age, these are your people. It can be interesting to read through some of the inner workings of investments, but I find the details to be a waste of my mental bandwidth. More importantly, the finance world has historically been known to evangelize certain ideas, up until the day they crash and burn (dot com bubble, housing bubble, etc). Whenever you read these kinds of articles, just remember, it behooves the finance world for you to follow their guidance. The other content I see a ton of is gimmicks. Hordes of false prophets promising you that if you just follow these five easy steps, you too can be a real estate investor millionaire in 2 days with passive income of 1 trillion per hour. Seriously, some of the stuff I see is outrageous. I get it. The false hope and allure of striking it rich quick always seems to attract attention, but most of that garbage is not realistic nor as “easy” as they say it is. As if nobody thought about fixing and flipping houses, or becoming a landlord. The market is just wide open for someone like you to storm in and make billions! Reality: most markets are overpriced and saturated with investors who have more capital and experience than you.

The only impossible journey is the one you never begin. -Tony Robbins

I plan to keep my content guru and gimmick free. Never will I advocate for my readers to implement specific strategies or use certain products (unless they are free, because who doesn’t like free!?). One thing I’ve learned over the years is there is no right way to do this. Everybody has their own unique situation that calls for their own personal strategy. Hence, I do endorse the concept of taking control of your financial life and learning as much as you can about money. Your decisions are your own to make. Don’t pass the buck.

As far as my generation goes, I’m an outlier. Millennials aren’t getting married. I married in my twenties. Millennials aren’t having kids. I already have 3. Millennials aren’t leaving the house and in some cases are still dependent on their parents. I left home at 18 and never asked for a dollar since. We are supposed to be worse off than our parents, but I already passed mine before I hit 30. The pitfalls our generation faces, which I mentioned earlier, can be avoided. I managed to do it, and you can too. It’s not fun. It’s not easy. It takes discipline and I’m sorry to burst your bubble, but the get rich quick schemes are fantasies.

Have you had a moment in your life when you wanted to try something completely different? Did you take the plunge? Share your story.