Thursday, December 10, 2009

Stocks, Bonds, Property, Cash, or Gold

Here we will look at what was the best investment for your money since the introduction of the Euro. For this illustration we will consider that you had €1,000,000 to invest ten years ago and you wanted a safe place for it?

Option one is, you take the €1million in cash and hide it in a very safe place. You now still have €1million in cash to do what you please. However, you lose to this thing called inflation, but how much?

I think we need to look at the money and credit expansion and not CPI when we consider inflation. So in December 1999 if you had €1million in cash, that was 0.0000027 of the €361billion of Euro currency in circulation at that time. Now your million is just 0.0000012 of the €774billion Euros in circulation. Just 44% or put differently, the Money supply is up 114% during this period.

To put this simply, if your investments or your earnings are not up 114% from what they were 10 years ago you are less well off. Your €1million needs to be more than €2140000 just to keep up with money and credit expansion. This required an 8% annual compounded growth.

So let’s see how the other asset classes performed.
You put your million in a deposit account at net 5% compounded annually and you receive €1,628894

You buy 1 million worth of Irish housing property you get back €1,615,026 and your net rental income possibly €500000 at a rental yield of 4% with interest at 3% so the total is €2,115,026.

You buy €1 million of Irish stock, they are now worth €598541 + the dividends you received.

You buy €1million worth of the DJ Euro Stoxx 50 index, it is now worth €567,800 + the dividends you received.

You buy 3571ozs of gold at €280 an oz. its value is now €2,857,142 less storage costs. A growth of 11% compound annually.

It is a very weird situation when holding real money (gold) in storage outperformed investing your money in any other asset class. We have explored why this is so in previous blogs see and

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