To measure ones wealth, the "price" of ones assets is not very important but the "purchasing power" or "relative value" is very important. Understanding this difference may be one of the most important concepts an investor can learn.

To become an "instant billionaire" simply measure the "price" of your investment portfolio in Zimbabwean Dollar's instead of your local currency.

If you were to measure your portfolio in Zimbabwean dollars, there is a good chance that you are a billionaire and yet your relative wealth, or standard of living, is unchanged. This extreme example helps illustrate that when we measure any asset in any currency we are actually measuring the value of the asset as well as the currency itself.

As you can see in the above illustration the "Price" of the Dow Jones Industrial Average is actually a ratio between the value of the US dollar and the value of the Dow Jones Index. In other words the measuring stick, "dollars", is a moving unit of measure which can drastically skew our investment results and perception of our actual wealth.

To illustrate our point please note the "price" of the Dow Jones over the past nine years in the chart below.

Now notice how the Dow Jones has performed over the same time period "relative" to another asset such as gold.

In the year 2008 the Dow Jones crashed in value relative to the US dollar but when compared directly to gold the Dow Jones had been crashing since the year 2000. In the year 2000 it took roughly 42 ounces of gold to buy one share of the Dow Jones Industrial Average and in the year 2009 it takes roughly 7 ounces of gold to buy one share of the Dow Jones Index. Relative to gold the Dow Jones has lost about 82% of its value since the year 2000.

The above realization of relative value and "real" losses could make an investor depressed but through this new enlightenment opportunity arises. If the Dow Jones has lost 82% of its value relative to gold, expressed another way, relative to the Dow Jones, gold has increased in value 450% since the year 2000. Back in the year 2000 significant opportunity was available for the investor who understood the relative value of gold to the Dow Jones Industrial Average.

Had an investor transferred their capital from the Dow Jones and placed that money into gold in the year 2000, relative to the Dow Jones, they would now be about 4.5 times richer. In this example the individual's actual purchasing power and wealth has increased significantly.

As investors we want to know what the "value" of our portfolio is so that we may spot more opportunities such as the one noted above. This is why we have been invested in Silver and Gold for many years and we plan to monitor the "value" of our portfolio to help us decide when to exit our positions. There is no magic formula for guaranteed results when investing, but in order to assist us in our investment decisions we have created a variety of custom built timing charts that help us bypass the distortion of the fluctuating US dollar measuring stick. To sign up for our free newsletter and to learn more about our investment strategy please visit us at www.investmentscore.com.