1970 vs 2017 Invest in Inflation
1970 -2017 Comparison
The 70's were a groovy time for sure! However, I'm glad clothing styles have progressed since then but, the progression of home prices, gold, S&P 500 (and more) has disproportionately outpaced household incomes...
- Median House Hold Income $9870
- Median Home Price $23,400
- Gold Ounce $39
- S&P 500 $90
- Average Car $3550
- Gallon Of Gas $0.36
- Milk $1.15
- Federal Debt: $380.9 Billion
- Median House Hold Income $59,345
- Median Home Price $263,800
- Gold Ounce $1348
- S&P 500 $2,494
- Average Car $33,560
- Gallon Of Gas $2.40
- Milk 3.29
- Federal Debt 19.8Trillion
Gain in Value from Original 1970 Prices-2017 Prices. Example: Gold went up 34X ( times) since 1970.
Let's Break it Down Chica Brown Cow
(A.K.A. Let's see the devaluation of household incomes and inflation in prices)
- Household Income in 1970 was 42% of the price of a median home. Groovy! ( 1 year of income could pay for just under half of a house)
- Today, household Income is only 22% of the price of a median home. Ouch! ( 1 year of income today can only pay for less than a quarter of a house)
- In 1970 an Average Car was 36% of the annual household income. Groovy!
- Today, an Average Car is 56% of the annual household income. Ouch!
- In 1970 an ounce of Gold was 0.39% of the annual household income. Groovy!
- Today an ounce of Gold is 2.27% of the annual household income. Ouch!
- In 1970 the S&P 500 stock was 0.91% of the annual household income. Groovy!
- Today S&P 500 stock is 4.2% of the annual household income. Ouch!
***Keep in mind that the definition of household incomes includes dual income families which there are more of than in the 1970s. More People working in a house and household incomes are still outpaced!
Should Have Invested in Gold or Stocks Right? WRONG
Let's be real. Gold is not worth more today than in 1970. Gold is not worth more today than 2000 years ago, says my grandpa. The dollar is just worth less. Today 1400 bucks for an ounce of gold would by you a nice new suite, pair of shoes, dinner, and 2 tickets to a play on broadway. Not even all that probably. 2000 years ago a Roman with an ounce of gold could have bought the same date night package. Does that Make Sense?
Sure, you could have 34X (timesed) your money in Gold since 1970. But, How much cash does the average american have to invest like that? not a whole lot. Gold is a dollar for dollar investment. Real Estate on the other hand is leveraged by the bank! Your 0-Small downpayment gets leveraged by the bank and when you sell your home years later, you keep 100% of the profit. Let's do Simple Math again.
- let's say you could save 10% of your 10,000 income in 1970 for 5 years straight to invest $5,000 in gold. 5,000 bucks put into gold then at $39oz. You resell today at 1348oz for $172,820. ( Not Bad for the Rich to dump money in that)
- Now let's say you could save 10% of your $10,000 income in 1970 for 5 years straight to invest $5,000 (20% down payment) in buying your first home for $25,000. You resell today at $263,800 and subtract out your 5,000 down payment and you netted $258,800. For my analytical friends: The cost of interest should be figured in. In 1970 interest rates were 12% on average. I don't know if they had 30 year terms then for sure but assuming they did then, the cost of 12% on 25,000 over 30 years= $67,575 bucks. now take your resell price of $263,800 subtract $5000 for downpayment, subtract $67,575 for interest and you net. $191.225. Real Estate Wins Again! I'm not even counting if you ever rent it out so someone else pays off the mortgage for you. Real Estate Wins Big in that case. (sure there are cost of repair of 30 years too. blah blah blah my head hurts.
- Rates today are only 4% on mortgages so your net return over time on your actual downpayment money will be "HUGE" (the way Trump says it) in the long run. Plus there are Zero Down Loans now.
So What Can We Learn From All This?
- Inflation is very real and we can see it in hindsight. We can pick assets like real estate or gold that thrive in inflation to make a killing these days.
- Median Job Wages are too low, forcing dual income families in order to continue living the American Dream like generations before did. You can still succeed financially though if you are intentional about it.
- Millennials really do have a bigger undertaking financially ahead of them than generations before so living at home is a good way to save money to then start their own journey.
- Save money however you can and invest in assets that love inflation or that like that the dollar is becomes worth less over time. Gold Stocks and homes will use inflation to build your wealth.
- You gotta live somewhere and rent is more expensive. Buy a home eventually and be patient and you will build wealth just buy living in your home and making your payments.
- Buy Rental Properties! Let others build your wealth in addition to real estate appreciation which will always happen in the long run simply because of inflation.
- Gold and stocks are for the current wealthy with cash to invest. Real Estate creates wealthy people.
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