You hear lots of hype and arguments about money, inflation and what investments protect your savings.
If you lived through the 1970’s, you remember inflation, and you’ve seen how it’s whittled down the value of the US dollar.
What has really happened to the value of the US dollar and popular investments for the past 44 years?
Let’s take a look and see.
I’m going back to January 1, 1975 because that’s the first day for over 40 years Americans could legally own gold for investment purposes.
Also, 1975 was the middle of an economically terrible decade for Americans, and, since then, we’ve seen plenty of both good and bad times.
Inflation
This is a good place to start. According to the federal government, inflation is measured by the Consumer Price Index (CPI) for Urban Workers.
January 1975: 52.40
End of October 2019: 250.894
Increase: 474.8%
(Of course, that translates into a 474.8% in the decline of the dollar.)
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Social Security
This includes all pensions and benefits linked to the government’s cost-of-living increases.
(Besides Social Security, that includes Railroad checks, VA checks, SSI, federal, state & county pensions, private corporate pensions and union pensions.)
I’m using the Full Benefit Amount (FBA) for Supplemental Security Income (SSI) as a marker for all of the above because the figures are easily found on Social Security’s website. All of the above pensions increased proportionally from 1975 to 2020.
January 1, 1975 FBA: $146 per month
2020 FBA (begins January 1, 2020): $783 per month
Increase: 536.30%
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Gold
Here’s the investment that’s supposed to be the world’s “safe haven” from economic troubles.
January 1, 1975: $175 per ounce
November 26, 2019: $1,450 per ounce
Increase: 828.57%
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Silver
January 1975: $4.30 per ounce
November 26, 2019: $17 per ounce
Increase: 395.34%
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Crude Oil
1975: $12.21 per barrel
November 26, 2019: $64 per barrel
Increase: 524.16%
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Residential Real Estate
I’m using the Case-Shiller National Index.
1975: 103.46
2018: 212.20
Increase: 205.10%
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Prime Rate
Many people put their money into interest-paying investments. These include savings accounts, money market accounts, certificates of deposit and many kinds of government and corporate bonds.
It’s difficult to fairly compare yields between all of them, because some are more risky than others. However, comparing the prime rate of 1975 to 2019’s serves as a general marker for all of the above.
Also, bonds can be bought and sold for a profit and loss. If you bought bonds in the 1980’s, you have a profit because interest rates have gone down so much, those old bonds are worth much more than bonds issued today.
Still, this gives you an idea of how attractive interest-paying investments are today.
January 1, 1975: 10.25%
October 30, 2019: 4.75%
Decrease: – 51.3125%
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Federal Minimum Wage
January 1, 1975: $2.10 per hour
November 2019: $8.35 per hour
Increase: 397.61%
Advocates for raising the minimum wage are correct when they say it hasn’t kept up with inflation. However, raising it to $15 per hour would make it far more attractive than it was in 1976.
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Averaged Indexed Wages in the United States
1975: $8,630.92 per year
2017: $50,321.89 per year
Increase: 583.04%
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Dow Jones Industrial Average
January 2, 1975: 632
November 26, 2019: 28,121
Increase: 4,449.52%
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S&P 500
January 2, 1975: 68.65
November 26, 2019: 3,140.52
Increase: 4,574.68%
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NASDAQ
January 1, 1975: 59.82
November 26, 2019: 8,647.93
Increase: 14,456.58%
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Utility Stocks
Because utility stocks are widely considered the most conservative, “boring” sector of the market.
I’m using the Dow Jones Utility Index.
January 2, 1975: 80.27
November 26, 2019: 852.18
Increase: 10,616.41
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Real Estate Investment Trusts
(equity only, because mortgage REITs are a different-and riskier-kind of investment)
January 2, 1975: 81.82
November 25, 2019: 8,594.62
Increase: 10,944.29%
Keep in Mind . . .
This is only a snapshot in time, although a long time. The investment assets have been extremely volatile in the past 44 years. Gold, oil, stocks and the prime rate have all seen tremendous ups and down.
The stock market is currently making new highs. A comparison done in March 2009 would not be so dramatic, though stocks would still have been the winner, even then.
This is NOT comparing total returns combining both capital gains and income. Bonds look a lot less appealing than stocks, but you do receive regular interest payments. That’s also true of such stocks as utilities, real estate investment trusts and many S&P 500 stocks.
To be totally fair, I’d have to compare 1975 to 2019 “real” interest rates. That is, interest rates over and above the rate of inflation. That’s no doubt fluctuated over the years, yet I can’t find any official index measuring it.
With gold and silver, however, all you get are capital gains, because metals don’t write checks.
If you received interest and dividends and reinvested them, you’d be MUCH better off than this comparison shows.
Always remember – past results do not predict future returns.
What are the Takeaway Lessons?
Inflation has greatly cut the purchasing power of the US dollar, though inflation has declined dramatically since 1982.
Pensions and Social Security sort of keep up with inflation, and that’s all they promise to do.
The minimum wage is behind inflation because it’s not automatically linked to annual cost-of-living adjustments, as pensions and Social Security are.
Average wages have risen more than inflation, but not by much.
The hard assets have also done only so-so. Of course, the price of home ownership varies a lot by location. Prices in expensive cities have risen far more than the national average. Still, houses seem to be more valuable as homes, not financial investments.
Interest rates have gone down a lot, but if you can get an interest rate or dividend yield that’s higher than the current rate of inflation, you’re ahead of the game.
The real winners are – obviously – stocks.
I’d say – owning productive and profitable assets.
The United States has had many ups and downs since 1975, and so has the stock market, but in general American business has grown tremendously in the past 44 years.
And equities that pay dividends – utilities and REITs – beat the S&P 500, though not the NASDAQ.
Should You Avoid Gold and Silver?
I don’t know the future. I believe it’s clear that, compared to stocks, the precious metals have been big losers over the past 44 years. However, that may change.
The one thing that hasn’t happened in the past 44 years is near-total economic and social collapse. If China and Russia manage to destroy the US dollar as a reserve currency, so the US stock market collapses, gold may indeed soar to $10,000-50,000 per ounce.
Just remember, it costs money to store and insure. And it’s not protection against true disaster, because you can’t eat it.
Therefore, my suggestion is to look upon it as a form of portfolio insurance – a hedge against a collapse of the current economic system.
