For the past 7 or 8 years I have been a big proponent of gold and silver investing. I am a big opponent of paper money and our fiat currency. Plus, the ever increasing national and global debts doesn't make me optimistic about where things are headed and does not comfort me at night.
Regardless, I've been doing a lot of thinking about my collection. It really isn't a collection, but an investment. However, it doesn't do anything. It just sits there. I can pet it and coo to it all I want but it doesn't produce anything. Point blank, it isn't a “productive” asset. It doesn't produce anything each week, quarter, or year. It just gathers dust in my safety deposit box.
Now shift gears and consider land. Land in 1900 was about $45/acre and now it is worth about $9,000/acre. At the same time gold was about $20/ounce and now it is $1052/ounce. However, here is the big kicker. Land over the same period has produced a 115 years of crops (aka a productive asset) that generates income for a farmer or corporation. Gold or silver hasn't produced anything. It just sat there.
Here are my thoughts on why land is such a better asset to invest in for the long term instead of gold or silver.
- A productive asset will always outperforms an unproductive asset (over the long term) – What is a productive asset? It is an asset the produces a regular income or subset of assets. Take for instances the stock market. It continues to produce dividends year over year despite all the fluctuations. Gold and silver on the other hand aren't a productive asset. They just sit there and gather dust. You can pet your gold and rock it to bed at night, but it won't do anything for you. It doesn't give you anything year over year for owning it. It is merely a “hedge” against inflation and fiat currencies.
- Land will adjust with inflation – Land, just like gold and silver, is a great hedge against inflation. As the rate of inflation grows, then so will the goods and services that are produced from the land. Just like metals, land will help you, as an investor, fend off the affects of inflation.
Land prices are hard to manipulate vs gold/silver – Land prices are affected by a number of factors. They include,
prices of goods that can be produced from it, quantity of goods produced from it, domestic and foreign trade (tariffs), dollar value, supply and demand, and what bidders are willing to pay for it (basic supply & demand). Land isn't a type of investment that can be manipulated like a currency or ETF fund. It has a number of different impacting factors that I mentioned above and some of which aren't able to be easily modified. This fact makes land even more attractive than most of your traditional investments.- Gold has very few uses compared to land – Gold is one of the best metal conductors of electricity and for use in jewelry. At the same time it is an extremely expensive product to use in electrical wiring and jewelry. Land, on the other hand, has a lot of capabilities. To name a few: producing crops (corn, beans, wheat, etc), raising livestock on, subdividing into smaller suburban lots, building a factory on, building a windmill on to produce electricity, or even leasing out land to a cell phone company to build a cell tower on. Vacant land can be used for any number of uses, which opens up a lot of possibilities in increased return on investment and/or passive income streams.
Previously I've written about how gold and silver were such a good investment, and I've slowly changed my tune. I've realized how gold and silver are so unproductive. They aren't working for me. I want my investments to work for me month over month. However, this doesn't go without saying that I still believe that gold and silver do have a small part in a persons portfolio. Ideally, most investment advisers recommend 5-10% of your portfolio, and especially if we want to hedge against all the fiat currencies.
I'd love to hear from some of our readers on your thoughts on what investments you make that are a “productive asset”? What are your thoughts on gold? What are your thoughts on land?
6 Comments
Its not land vs gold. They compliment each other perfectly. Land is more productive than gold, BUT it carries a holding cost in the form of property tax. This goes up with inflation…just like gold, hmmm.
So you buy your land and you make it produce ( hard work BTW ), but you keep some gold on the side. Approximately 10 years worth of property tax should do it. If the day comes that your land isnt producing due to market values changing, or the cost of holding ( taxes ) outpaces the productive value, OR you get old and cant work the land, you will have a fall back. A virtually nontarnishable, indestructible form of wealth that keeps pace ( or beats ) inflation makes a very good insurance policy to help you keep that land over the very long term.
You negate the fact that gold, and many more valuable assets are found on land. Gold is just… gold.
Kind of hogwash in many ways. First of all, land is in the governments scopes. Don’t pay taxes, gone. Taxes go up 50% in 30 years, too bad. gone. Eminent domain, here are some notes in exchange. zoning change, suck it. Don’t buy land that produces a producitve crop. obsolete. natural disaster, pick up the pieces. leave the country, can’t take it with you…..tell me how these few things stack up against the private and portable silver and gold?
I don’t believe any of the poo surrounding gold. As you’ve said it will not be used as a medium of exchange, and I know you’ve heard Dave Ramsey’s stance on it given that you’re a listener of his and have gone through FPU. Yes, it has had major ups (and major downs) but they’ve all taken place in a relatively short period of time. As a long term track record I don’t think it’s very good.
I received some gold as part of an inheritance but sold it after a few years. My grandpa had bought it as protection against an economic collapse, but in a true crisis it would be pretty hard to use gold. You can’t shave a little sliver off a Krugerrand to buy a loaf of bread. It made more sense for us to turn it into equity on our house, putting us closer to being out of debt. There’s a place for gold investing but I personally didn’t like the feeling of something just sitting in a safe deposit box either.
Ellen – I couldn’t agree more. It is hard to go against what your grandparents thought, that the economy might take a dump, but you need to get that money working for you! Did you have any regrets in your decision?