The difference between investing in gold and stocks is a multi-billion-dollar gap over time.
There were endless lessons learned and tips for investors coming out of the Berkshire Hathaway annual meeting last week, and Warren Buffett, but his demonstration of what $10,000 in gold would have gotten you compared to $10,000 in stocks over the past decades should be enough to keep everyone from freaking out over today’s volatile market.
American business, Buffett said, is far more profitable an investment that safe-haven gold, and everyone should stop running away every time a headline scares them.
It’s all about time, and investing in American businesses over time is the only way to really make money, Buffett says. And, of course, when a billionaire worth over $83 billion speaks, plenty listen.
“For every dollar you could have made in American business, you’d have less than a penny of gain by buying into a store of value which people tell you to run to every time you get scared by the headlines,” he said during the annual meeting.
Over time, it’s not gold that’s profitable. It may be ‘safe’, but it’s not going to get you very far.
To prove his point, Buffett noted that anyone who invested $10,000 back in 1942—when he started investing—in an S&P 500 index fund would be worth a whopping $51 million today. The same investment in gold would have earned you about $400,000. Earning $400,000 in 76 years is not impressive mathematically.
And it doesn’t take a genius to figure out this investment strategy. According to Buffett, an investor had only one decision to make: “All you had to do was figure that America was going to do well over time.”
Nothing scared him away, from World War II, when everyone ran to gold, to today’s crises in the Middle East, from Syria to Yemen, and fears surrounding the looming decision on the nuclear deal with Iran this week. For Buffett, these are all minor blips on the radar. And if you run to gold, all you’re have in the end is that same gold. Related: Stock Bulls May Be Preparing For A Break Out
Neither is Buffett concerned about a global trade war, suggesting that the U.S. and China will find a scenario in which everyone is a winner, even if there are some frustrations along the way.
Buffett offered up a similar theory on Bitcoin, or cryptocurrencies in general, describing the digital tokens just as bad as gold and “probably rat poison squared”. He also said it was like “trading turds”.
For both gold and bitcoin, Buffett told CNBC: “If you go back to the time of Christ, and you look at how many hours we had to give up in order to buy an ounce of gold and you bring it forward to now, you’ll find the compound rate may be a tenth or two-tenths of 1 percent, … but it doesn’t produce anything.”
Bitcoin is similarly a “non-productive asset”. “All you’re counting on is the next person is going to pay you more because they’re even more excited about another next person coming along,” Buffett said.
When it comes to investing in stocks, Buffett has extreme patience. Wealth is accumulated over a lifetime.
By Charles Benavidez for Safehaven.com
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