Ans. Your investment will plummet in the next few years, and it will take about 25 to 30 years to recover it back.
That’s not the answer you wanted to hear, but that would’ve been the correct answer for anyone asking about gold investment in the late 1970s.
Here is a chart that shows how gold prices moved from the 70s till date.
I bring this up because there are a large number of comments that ask about the expected returns on gold, or some other commodity or mutual fund without inquiring about risk.
As I’ve said earlier, there is absolutely no point in talking about returns, if you’re not talking about risk. While it might be true that gold has historically returned more than inflation, or that it has done extremely well in the past decade – that doesn’t mean it will continue like that forever.
Let’s see if you can guess what I’m talking about here.
If you invested in me today you will lose 80% of your money in the next two decades. Don’t worry – it will be painful at first but then you will get used to it.
This is not a penny stock or some shady investment – I’m talking about Japan’s leading equity index the Nikkei 225 which reached its peak in 1989, and was at about 20% of its value two decades later.
I have a strange feeling that a lot of Japanese folks were talking about expected returns in the late 80s, but there weren’t many who were talking about risk.
There is risk in everything – inflation eats into cash, countries can go bust and default on their debt, and of course banks can go under as well. You can’t just go back to the barter system because of that; my point is that you should understand that there is this risk element present in these avenues, and try to understand that.
A lot of people do ask these type of questions, and that’s great, but for those of you looking for an expected return number only – you’re looking at just half the equation.