Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Forget Gold... This is the World's Most Powerful Inflation Protection

Companies / Investing 2013 Nov 24, 2013 - 06:56 PM GMT

By: DailyWealth

Companies

Dr. David Eifrig writes: What I'm about to say might anger you...

But if you're holding gold as your only hedge against inflation... you're likely making a big mistake.

Many folks believe this common "myth" about gold: As the price of everyday goods we buy rises, the price of gold will increase in lockstep.


It makes some intuitive sense. But in reality, it doesn't work that way... And there's a MUCH BETTER inflation hedge out there...

Take a look at the chart below. The black line is the price of gold... The gray line shows increases in the Consumer Price Index (CPI). It's the government's measure of inflation. And no, it's not perfect. But it does show that prices increased from 1987 to 2004.

You can see that during 17 years of inflation, as consumer prices were increasing, gold prices went nowhere.

Over my investing lifetime, the only great time to own gold has been when real returns on fixed-income securities turned negative...

For example, when inflation has been more than interest rates on U.S. Treasurys, gold has been a great asset to own.

But that situation is uncommon. It has only happened about 16% of the time. Most of the time, when the five-year Treasury note has paid more than inflation, gold has done nothing.

So a much better way to secure your retirement against inflation is to regularly invest in "productive assets." These include everything from farms to businesses.

These assets have the power to protect against inflation because they can grow your investment faster than inflation erodes it.

Look for businesses (stocks) that hold pricing power and have brand loyalty. If inflation kicks in, the ability to raise prices right along with input costs helps maintain your wealth. And businesses with loyal customers can usually pass along those price hikes without much loss in volume. That means steady profit margins and more wealth.

Take a company like McDonald's (MCD). The demand for fast food will continue, and Mickey D's will surely still be slinging burgers in another five or 10 years.

The company regularly responds to consumer demand. For example, it placated health-conscious parents by offering apples and milk in its Happy Meals. And it sells lattes to compete with local coffeehouses. Some retired friends of mine just confessed to a daily trip to "their coffee shop" – the one under the Golden Arches.

If prices go up along with inflation, you can be sure McDonald's will retain its loyal patrons and its profits like it has for the last 50 years. Companies like McDonald's are perfect inflation defenses.

This chart of McDonald's, gold, and the S&P 500 shows how a great, blue-chip company protects you as well as – or better than – gold can during tough times.

Here's another way to look at it... A while ago, a Fortune magazine article compared three $100 investments placed in six-month U.S. Treasury bills (short-term interest-bearing securities), gold, and the S&P 500 in 1965. Today, those investments would be worth $1,336, $4,455, and $6,072, respectively.

Stocks beat gold by 36%. This shows the power of long-term investing in good stocks.

As my regular readers know, I like gold and silver as "chaos hedges." During times of great economic and political stress, gold outperforms many asset classes. But I don't recommend putting more than 15% of your portfolio here (and I prefer an allocation closer to 5%).

If you're truly interested in an "all weather" asset to place a large chunk of your portfolio into, go with the world's best dividend-paying companies... like Coca-Cola, McDonald's, and Johnson & Johnson.

If inflation ever gets to be a problem, you can depend on these companies to grow your nest egg, while paying cash dividends along the way. If inflation isn't a problem (like right now), these companies still grow your wealth and pay ever-rising cash dividends.

No one can make those claims for gold.

Crux note: Doc spent the last 18 months developing several strategies to "time" his investments in blue-chip stocks and other great income-producing assets. What he developed is extraordinary... A legitimate way to make up to 10-20 times more money than others, on the exact same income investments. Even better, Doc has created an easy way to help you use these strategies, starting this month. You can get all the details by clicking here. Please note, this opportunity closes TONIGHT at midnight.

http://www.dailywealth.com

The DailyWealth Investment Philosophy: In a nutshell, my investment philosophy is this: Buy things of extraordinary value at a time when nobody else wants them. Then sell when people are willing to pay any price. You see, at DailyWealth, we believe most investors take way too much risk. Our mission is to show you how to avoid risky investments, and how to avoid what the average investor is doing. I believe that you can make a lot of money – and do it safely – by simply doing the opposite of what is most popular.

Customer Service: 1-888-261-2693 – Copyright 2013 Stansberry & Associates Investment Research. All Rights Reserved. Protected by copyright laws of the United States and international treaties. This e-letter may only be used pursuant to the subscription agreement and any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), in whole or in part, is strictly prohibited without the express written permission of Stansberry & Associates Investment Research, LLC. 1217 Saint Paul Street, Baltimore MD 21202

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Daily Wealth Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in