Tuesday, February 05, 2019

Investing in gold to preserve wealth

A money manager might say, she will invest your money in gold to preserve your wealth. She asks for a 0,5% fee per year and you pay the Dutch government 1,3% taxes per year.

If you have tens of millions and buy 500kg of gold, you will lose 1,8% per year. Your expected return is 0,98 per year. So after 50 years, how much gold do you have left?

500kg x (0,982)^50 = 200 kilograms, more than half your wealth is gone...

If you invest the money in assets that create cash flow, a (volatile) after tax, after inflation return of 5% is reasonable. How much gold will you be able to buy after 50 years?

500kg x (1+0,05)^50 = 5 750kg

You will have roughly 30 times more gold than in the option where you wanted to preserve wealth.

See also Matthew 25:14-30



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