PM vs Real Estate vs DOW: Initiall investment 1978
isaiah58
Posts: 385 ✭✭✭
I remember reading something a long time ago that PMs preserve wealth. The basis was the average cost to purchase a home.
Just did some math. I am rounding things up a little.
In 1978, in suburban areas near larger cities,, one could purchase a new townhouse for about $25,000, single family home $30,000. The DOW average was under $900. Gold was selling below $300, Silver hovering around $6 - $7.
The same size homes today are selling for 10x that easily.
The Dow today is 24.5x.
Gold is 6x, being generous silver is less than 4x. At best case, silver can jump ahead of gold very short term but will not outperform long term.
Gas was about 60 cents. Today it is about $1.80: 3x.
I am not keen on adjusting for inflation. I do see that the average income is about 5x.
Most common food and household items are about 2x the cost on average.
Remember, average home price is subjective because as more affordable housing is built extending suburban areas into rural, housing in and surrounding cities have become very expensive. Today's low interest rates are allowing this. Which puts cash buyers at a disadvantage.
Comments
Shussh!!
Knowledge is the enemy of fear
Be an interesting comparison if the same tactic of ...financing.... was applied to gold.
Never calculated it.
Anyone?
Bueller?
Anyone??
Of course, if "portablity" is considered a desirable element, the whole thing dissolves.
PMs are great insurance, not so great an investment.
They are my hedge against dollar stupidity.
Keep an open mind, or get financially repressed -Zoltan Pozsar
I have always considered, and still do, silver as an investment and not a hedge for a SHTF scenario.
PMs are all investments...unless they dont perform well. Then they are called insurance.
Knowledge is the enemy of fear
1978-2020 why did you pick that span? Why not 1966 to 2009 when things would be far worse for RE and SM? A "little" 10-12 yr shift sure makes a big difference in the analysis. Why not 2000-2020? Oh wait a minute. All those periods would give far different results and actually make PMs look pretty good.
All markets are cyclical. The real estate market is on an approximate 78 yr cycle.....55 yrs up and 23 years down. The current down cycle began in 2007. Check out Martin Armstrong's real estate cycle. While some parts of the country that are actually growing and thriving show nice gains in RE prices since the 2007 peaks, much of the country has not seen that. And before the next bottom is due around 2033, people will be looking at RE in a whole new light. Don't let the 1955-2007 up move blind you to what's coming in this next decade.
Similarly, don't let what happened to gold in the last decade (2011-2018) blind you to potential. Gold went up 7.6X from 2000-2011........how did RE and stocks do in that same 11 yr period that gold went from $252 to $1923/oz? Short answer - they stunk...Dow up a piddly +8.5%......Home RE median ave nationwide +40%. Each 8-10 yr period has big winner and losers.
Long term value over 40 yrs? How about gold from 1971 to 2011....up 55X. Silver up 37X. The finest rare coins have similar ratios in that same period. My best coin ever went up 27X from 1975 to 1990....and 58X from 1975 to 2008. The Dow was up 14X in that same 40 yr period. If you factor in dividends, etc. no doubt up more. If you factor in the fact that the Dow replaces winners with losers all the time....not as good. Home Real Estate was up 7X. Factor in depreciation, maintenance costs over 40 yrs, etc. probably not as good. Since many people only have an effective investing period of 40 yrs (age 25 to 65) that's about as long term as you need. Stocks broke even from 1929 to 1954 even after many Dow losers were tossed off the index. Things are cyclical....not absolute.
LOTS of dollar "stupidity" currently going on. With all the current "stupid" reality TV shows going on....you knew things were coming to crunch time.......Dress makeovers, multiple home makeover shows, house flipping shows all over the place....you get the drift. The only thing we were missing was Carlton Sheets and Tom Wu hawking their RE flipping plan. "Everyone" had $100K-$200K on home remodeling plans. Crazy.
In 1978, in suburban areas near larger cities,, one could purchase a new townhouse for about $25,000
I bought a 2-bedroom townhouse, with a loft, near Houston in 1976 - for $36,000. So, your numbers may not be entirely reflective of reality.
I went back to look a few years ago, and I doubt very much that that townhouse would sell for anything near $360,000 today. Maybe $80,000.
I knew it would happen.
@roadrunner the general stacker is a long term owner. I selected a long term period that best represents long term growth. This eliminated end points that were related to short term events. Very few stackers sell and repurchase physical holdings. They do take advantage of events and will leverage the au/ag ratio. For example, the 2011 bubble you mentioned. That was a key time to convert silver to gold. At the current ratio, to convert some gold back into silver if so inclined.
I chose the timeline to also reflect the price stabilization that happened after deregulation settled in.
@jmski52 the Texas market took a huge drop. I live in the DC/Metro area. My parents purchased a brand new 3 bedroom, 4 level townhouse in 1978 for $25k. I sold cars in the 80's and many customers in the area purchased their single family homes in the $30k range. Same townhouses sell for $250k minimum. Those single family homes are $300k if in desperate need of repair.
I'm looking to buy a roll of houses. Maybe a full bag. Can't find spot on them to rate the sellers.
Damn!
I kind of think of investments in terms of a 3-leg stool. And I agree that you can pick date ranges to show preference. Why bother? You can't sell stuff in the past, you can't predict the future.
I started buying real estate in earnest in 1991, when I was a kid. I was lucky and stupid and naive, and it worked for me.
My stock investments were small back in the day. Then my company's ESOP converted to a 401K and it got a little more interesting. Now, with every big real estate sale, I chuck a hefty % into equities. I don't get fancy, a half dozen index funds and maybe a half dozen individual stocks. I don't do options, I don't buy on margin. Keep it simple.
The final leg is an umbrella of physical assets. Coins and precious metals. They have varying degrees of liquidity. But they, unlike real estate, are portable. And unlike stocks, they're very quiet. They ride in a coat pocket and turn into handfuls of currency and back again in seconds without any kind of noise.
You have any of these and a paid-off house, you're in really good shape. You have them, a paid-off house, and six months of cash? You've got the American dream.
--Severian the Lame