Is Gold Actually A Hedge Against Inflation?
Well according to my television and financial "news" media the economy was on the verge of collapse this past April. The financial "news" media seemed excited about it and also excited to mention that gold had broken through to new all-time highs!
And while that is sort of true because gold recorded a new nominal high price. Nominal in this context means unadjusted as it pertains to inflation which is all that really matters. They tend to leave that part out because it's not as sexy and doesn't scare people as much.
Is Gold actually a good hedge against inflation?
I'm not sure if you know this but the price of gold has no long-term meaning other than as it relates to inflation but since it finally outpaced inflation for the first time since 1980 (barely) and the stock market dropped suddenly in April, it's time for the gold hustlers to come out in full force to sell their product.
That's fine I guess. There is not much I can do about it, but it makes me mad to be honest. The gold hustlers come out like opportunistic vultures preying on the people that are consistently waiting for the end of the world. The problem is that when you compare gold to the best companies in America, aka the S&P 500, you see a totally different picture.
The chart below shows how gold has increased since 1980 compared with inflation and the S&P 500.
Since January 1980 inflation has increased by a multiple of 4.1. Gold has increased by a multiple of 4.3, barely outpacing inflation. The best companies in America have outpaced inflation by a multiple of 51! You tell me what the better hedge against inflation is.
Gold does nothing. It just sits there enticing the naysayers and doomsday predictors to buy it. It increases in value when people are scared of current economic conditions. It's an inanimate object that may or may not be used for currency if an Armageddon situation arises. You might be better off with cows or chickens who knows?
Here's what I do know. The most consistently long-term effective hedge against inflation in the history of the world is a broadly diversified portfolio of the greatest companies in America and it's not even close.
Every single day the best companies in the world are working to increase and protect their capital for their shareholders, that's you and me and every single day gold sits there and does nothing. I'll bet on ingenuity of the American worker every single time.
The number one cause of failed retirement plans isn't running out of money per se, it's running out of purchasing power. That means your retirement money needs to outpace inflation for that not to happen. That also means you have to have some stocks of great companies in your retirement portfolio otherwise, without realizing it, inflation is going to erode your purchasing power.
You need a plan
Retiring - without a plan - is simply a plan to run out of money. Your NRECA R&S Pension is not a plan. Your NRECA 401k is not a plan. Your Social Security is not a plan. Those are only pieces in the retirement planning puzzle.
At 80/20 Financial Services we specialize in helping cooperative employees plan their retirement. We can show you how to turn your 401k and your R&S lump sum into a stream of income just like when you were working while also helping you achieve your desired financial outcomes in retirement. We help you retire with a plan, not just a portfolio.
A retirement planning consultation is free and without obligation. Contact us to set up a consultation.
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Brian Coleman/Electric Cooperative Retirement Specialist
80/20 Financial Services is an Independent Registered Investment Advisory Firm. We help Electric Cooperative Employees create their retirement income and investment plans. We turn your NRECA 401k and R&S Pension into a plan that will provide you lifetime income and can change your family's legacy. We help you retire with a plan, not just a portfolio.
Have you saved enough money between your NRECA R&S Plan, your NRECA 401k and other retirement accounts to retire and stay retired? Are you retirement ready? Click the link below if you need help.
Photo by Scottsdale Mint on Unsplash
