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COMPARATIVE ANALYSIS OF ASSET CLASSES (2000-2020)

OFFICIAL INFLATION IS UNDERSTATED. Your wallet will tell you that.So, what is unofficial inflation? In my doctoral dissertation, An empirical identification of an appropriate inflation definition and an inflation targeting monetary regime, I developed a new methodology for measuring inflation, and here it is:

THE ETII:  ELLIOTT TRUE INFLATION INDEX

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THE RESULTS OF MY RESEARCH

In a nutshell, my research shows that with a 25% margin of error to the UPSIDE only, official inflation is understated by 285.33%. Current official inflation in December 2020 is at 1.0% (according to the CPI). Based on my research true inflation is: 2.55%

AVERAGE ANNUAL INFLATION SINCE 2000 = 5.93%

WHY DOES UNDERSTANDING INFLATION EVEN MATTER?

It matters a TON! CPI inflation which is the OFFICIAL inflation measurement vehicle reported by the government, understates inflation, as we have just seen.

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REAL RETURN ON A CERTIFICATE OF DEPOSIT (CD)

Current 1 year CD rates are about .28%

Most people believe this is a guarantee not to lose money. But, with unofficial inflation averaging 5.93%, the guarantee of a CD means since 2000 you will be guaranteed to lose 84% of your investment because you are really losing 4.20% per year. LET ME REPEAT THIS!

Since 2000, CDs have a 33.72% gain or 1.61% per year. But, when you account for inflation, the average per year was a -4.20% LOSS.

THAT IS A HORRIBLE GUARANTEE!

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REAL RETURN ON TREASURY BONDS

Since 2000 the total return on a 30 year treasury bond is 64.34% or 3.06% per year.

With INFLATION at 5.93% on AVERAGE, a 30 YEAR TREASURY BOND has an average loss of -1.84% per year!

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REAL RETURN ON STOCKS

IN 2000, the Dow Jones Industrial Average was 11,239. By Nov 2020, twenty years later, the DJIA is at 29,520.  Some up years, and some down. But average growth per year 6.86%

With INFLATION at 5.93% on AVERAGE, a BROAD BASED STOCK PORTFOLIO would be growing at a rate of 0.93% PER YEAR.

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REAL RETURN ON REAL ESTATE

In 2000, the median home price in the U.S. was $185,800. In November 2020, the median home price in the U.S. is $322,340. That is UP 77.57% since 2000, averaging 3.69% per year.

Accounting for inflation, real estate is DOWN 2.24% PER YEAR!

COMPARATIVE ANALYSIS OF ASSET CLASSES (2000-2020) 1

REAL RETURN ON GOLD

In 2000, gold was $289 per ounce. November, 2020 gold is $1918. That is UP 177.06% in since 2000! That’s an average of 8.32% per year.

Taking inflation out, gold is still up on average 2.39% PER YEAR!

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REAL RETURN ON SILVER

In 2000, Silver started the year at $5.10 per ounce. November 2020 silver is $25.10 per ounce. That is UP 174.78% since 2000, or 9.20% per year.  Taking inflation out, and silver is still up on average 5.06% PER YEAR!

COMPARING DIFFERENT INVESTMENT RETURNS THIS CENTURY

Which is the best investment for you to protect and preserve your portfolio? The only way to grow your portfolio over time is to outpace unofficial inflation.

I wanted to go back to 2000 for this study to have a long term analysis, as different assets go up and down at different times, but this span of almost two decades will have ups and downs considered across all markets.

INFLATION ADJUSTED AVERAGE ANNUAL RETURNS (2000-2020)

COMPARATIVE ANALYSIS OF ASSET CLASSES (2000-2020) 2

I was actually very shocked by these results. I was expecting the stock market with it being near all time highs to have been the best. But for protection and preservation over almost two decades, the only three assets that posted positive returns are GOLD, SILVER, AND STOCKS.

A CLOSER LOOK AT THE DATA

COMPARATIVE ANALYSIS OF ASSET CLASSES (2000-2020) 3

As these trends continue, expect to see much higher prices in tangible assets and more losses in stock, bonds, real estate and CDs. This should continue until the fundamentals of the markets change, signaling a shift in the trends.The choice all of the sudden seems easy when we sift through all of the disinformation, and try to deprogram ourselves from what we thought were safe investments our whole lives.

THERE IS NO SUCH THING AS A BAD INVESTMENT, THERE IS JUST BAD TIMING FOR INVESTMENTS!

REFERENCES

Elliott, K. (2007). An empirical identification of an appropriate inflation definition and an inflation targeting monetary regime. Ann Arbor, MI: UMI.

http://www.bankrate.com/banking/cds/historical-cd-interest-rates-1984-2016/

http://www.forecast-chart.com/rate-cd-interest.html

https://fred.stlouisfed.org/series/DGS10

http://www.multpl.com/10-year-treasury-rate/table/by-month

https://fred.stlouisfed.org/series/MSPUS

http://www.gold.org/data/gold-price

http://silverprice.org/silver-price-history.html