By changing the start and end date, you can win just about any argument over what’s the best investment.
Even the age-old battle between Gold bugs and stock market bulls?
Yes, even that one. Here’s a guide to winning the argument, first in favor of Gold and then in favor of Stocks…
If you’re a Gold bug, you should only reference two periods to “prove” that Gold is a better investment: 1972-1980 and 2000-2011. What about all the other years? Ignore them.
1972-1980
Your Narrative: “Gold is the best investment in the world, and will continue to be so forever. There is hyperinflation in the U.S. and a secular stagnation in real growth. The only way to protect yourself is with Gold. And by the way: no one should own stocks.”
Your Evidence: point to a chart showing Gold’s 1,256% gain versus 97% for the S&P 500.
2000-2011
Your Narrative: “Stock investors have suffered through two 50% bear markets while Gold has more than quintupled. These are deflationary, depression-like conditions and only Gold can protect investors from what’s to come. This is especially true given the endless “money printing” by central banks. And by the way: stocks are terrible investments.”
Your Evidence: point to a chart showing a 443% gain for Gold versus 7% for the S&P 500.
If you’re a stock market bull, you should only reference two periods to “prove” that stocks are a better investment: 1981-1999 and 2012-2021. What about all the other years? Ignore them.
1981-1999
Your Narrative: “Stocks are the greatest investment the world has ever known, and will continue to be so. The internet age has forever changed investing returns and valuations; there is no upward limit anymore. The only way to participate in this new golden age is to be long and strong. And by the way: no one should ever own Gold.”
Your Evidence: point a chart showing stocks gaining 1,915% versus a 51% loss for Gold.
Your Narrative: “We’re in a Goldilocks period for the economy. This is unbelievably bullish for stocks and very bad for Gold. This environment will continue forever. And by the way: Gold is just a pet rock.”
Your Evidence: point a chart showing stocks advancing 337% versus a 16% gain for Gold.
As we have seen in the above charts, it depends on the time frame you choose. By changing the start and end date, you can “win” almost any argument in this business.
Overall, since 1972, the S&P 500 has had a higher annualized return (+11.1% vs. +7.8% for Gold) with lower annualized volatility (+15.2% vs. +19.5% for Gold) than Gold.
Stock market bulls would say this proves stocks have been the better long-term investment. Agreed, but how many equity investors would be willing to sit through an 11-year period (2000-11) with essentially no return and two 50+% drawdowns in between? Very few, just as there are very few Gold bugs who would sit through a 19-year period (1980-1999) where their investment was cut in half.
Which is why the real winner is neither stock market bulls nor Gold bugs. It is the investor who can actually remain invested in a portfolio through good times and bad. The best way to do this historically has been to diversify, because we can’t predict the future and there’s a cycle to everything. You never know when the next 2000-11 or 1980-1999 may begin.
Related Post:
What’s the Best Hedge Against Inflation?
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Disclaimer: All information provided is for educational purposes only and does not constitute investment, legal or tax advice, or an offer to buy or sell any security. For our full disclosures, click here.
