The other day we were talking about
401k’s and I said I don’t invest in one and that it is a bad idea to do so, to
which this coworker responded saying that I definitely should and that that is
a really bad idea that I don’t. I
proceeded to explain purchasing power and inflation with simple numbers. This all came up by the way cause we were
talking about the DOW hitting its record high.
I explained
that if before the 2007 financial crisis someone put 100k into the DOW stocks
and then held it through the crisis in which the DOW lost around half its value
and all the way till now when it regained that lost value and then surpassed
its 2007 high that they’d have 100k still.
However…how much would that 100k buy in 2013 vs 2007?
Oct 1 2007 is when the DOW
originally hit its 14k record. Gas on
that day was $2.78. The DOW hit its
record again on March 5th 2013.
Gas on that day was $3.69.
Conveniently that represents exactly a 33% increase nationwide in the
cost of gas between the two dates. This
is a perfect example of purchasing power at work.
Though the DOW investor still had face
value of 100k in their account…if they had tried to purchase the same
amount of gas as they had on March 5th 2013 as they had on October 1st
2007 they would’ve been sorely disappointed that they bought 33% less than they
had before.
Now for the example and reason I
tried to explain to my coworker why I don’t invest in my 401k option at my
job. I’m going to follow the exact same
dates for this example so don’t get lost.
If I bought 100k of gold in the form of one ounce coins on oct 1st
2007 and held it till march 5th 2013, which again is the same exact
the DOW went from 14k to 14k, my gold on march 5th would be worth
$209,073.83. That is a 109% increase in
value, or more realistically, how much purchasing power the dollar bill lost
when measured in shares of the DOW.
By the way if you don’t know…the
DOW is the index or compilation of the TOP 30 companies in the United
States. Not exactly small ma and pop
businesses. These are our most progressive,
hugenormongous, recognized, and robust companies in America and really the
world and they got their a$$es handed to them by gold. Like how I made the censored cuss word
letters out of dollar bill signs?!?!
Silver one ounce coins maintained their value in dollar terms by a 99%
increase, i.e. 100k over the same time resulted in $199,373.70.
So there we go. If you want to “invest” maybe you just
preserve your purchasing power and don’t invest in your 401k and don’t think
you know everything. Be…not…an addict
and think you know everything when everything else in your life is telling and
clearly showing you that you don’t know everything. When a new idea comes to you via someone don’t dismiss it cause
you think you know everything. That is
a bad idea…ignoring new ideas. Don’t do
it.
Quack!
http://www.eia.gov/petroleum/gasdiesel/xls/pswrgvwall.xls#'Data
1'!A1
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