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Please note: The Frank Talk articles listed below contain historical material. The data provided was current at the time of publication. For current information regarding any of the funds mentioned in these presentations, please visit the appropriate fund performance page.

Investing vs. Speculating: Why Knowing the Difference Is Key
October 31, 2018

Investing vs Speculating Why Knowing the Difference Is Key

As the stock market bull potentially nears the end of its run and we head into the last two months of 2018, many investors are making adjustments to their portfolios. Over the course of my travels and in conversations with other industry experts, I’m constantly reminded the importance of:  1) understanding the difference between investing and speculating, and 2) understanding risk tolerance.

These are two primary points for any investor seeking to make sound decisions with their money to understand.

1. Know the Difference in Investing vs. Speculating

All definitions vary slightly, but most are along the same lines. An investment is an asset or item acquired with the goal of generating income or appreciation in the future. Speculation is a financial transaction that has substantial risk of losing all value, but with the expectation of a significant gain.

Notice how the definition for investment doesn’t include the word “risk.” Of course, every investment carries some level of risk; however, the potential of losing the entire principal investment amount is largely what differentiates investing from speculating. Other factors to consider include time horizon, decision criteria and investor attitude.

Examples of well-known and popular investments include the stock market, bonds, U.S. Treasuries and mutual funds. Assets that fall into speculative territory include options, futures, foreign currencies, startup companies and cryptocurrencies.

Investment speculation table
click to enlarge

Take cryptocurrencies, for example. These digital coins, such as bitcoin and ethereum, surged in popularity late last year and are known for having high volatility, or price swings. Many consider cryptos as speculative assets due to their relatively short existence in the financial world, absence of sound regulation and the many unknowns surrounding trading patterns.

What about the lottery? The Mega Millions made headlines last week for ballooning to the second highest jackpot ever, after failing to find a winner in the 25 drawings since July. Approximately 15.7 million people bought tickets for a one in 303 million chance of selecting the right six numbers, and just one lucky person in South Carolina won the $1.54 billion prize. Is buying a ticket speculating? Or is it perhaps gambling?

I believe it all comes back to the level of risk.

Measuring Risk Through Volatility

Standard deviation, or sigma, is a probability tool that gauges a security’s volatility. Specifically, it measures the typical fluctuation of a security around its mean or average return over a period of time. I often refer to this as an asset’s “DNA of Volatility.”

Standard Deviation For One Year, as of 09/30/18
    One Day Ten Day
S&P 500 Index (S&P) 1% 1%
Gold Bullion 1% 2%
Bitcoin 6% 22%
Ethereum 6% 22%

Take a look at this table comparing an array of assets. Two of the most popular cryptocurrencies, bitcoin and ethereum, both have much higher volatility than the stock market, as measured by the S&P 500. On the other hand, gold bullion is only slightly more volatile than the S&P 500, and has actually outperformed the market since 2000.

At U.S. Global Investors we advocate investing in gold and gold equities due to its diversification potential. The yellow metal’s DNA of volatility is similar to that of the stock market, and as such we recommend allocating up to 10 percent of your portfolio in the space – we call this the Golden Rule.

Every security has a different sigma for a specific period of time, and as such your expectations as an investor should reflect these differences. An abnormally high sigma, such as those for many cryptos, can signal whether an asset falls into the investment or speculation category.

2. Determine Risk Tolerance and Investment Objectives

Texas is the top exporting state
click to enlarge

It’s no mystery that the investment portfolios of a 35 year old and a 65 year old should look noticeably different. As I’ve written about before, as a person gets older they should have a higher percentage of their money in bonds, for example, assuming their objective at that age is to protect the money they currently have saved for retirement and provide income. Investing in municipal bonds can be a good way to provide tax-free income for investors as they get older and move away from the stock market. A young person’s investment objectives differ significantly because they have a longer time horizon, particularly when it comes to recovering from any losses.

Highly speculative investments can indeed hold a place in some investors’ portfolios, but this should be based on their risk tolerance and goals. Depending on how much volatility you can comfortably withstand, it is prudent to adjust your portfolio accordingly when it comes to speculative investments.

No Risk, No Return

Many Americans haven’t been participating in the stock market bull run and using it to grow their savings. Saving should be a key goal for all, but so too should be growing wealth. Simply stashing away earnings in a savings account won’t protect against the destructive power of inflation, which is where investing and speculating come into play.

Even during increasingly volatile times with many asset classes, investors can still seek returns. We believe one way to potentially take advantage of the recent market turbulence is through active management, rather than passively managed index funds.

We believe informed investors make better investment decisions and that is why one of our core company values is a focus on education. I encourage you to stay updated on the latest market moves by reading our Investment Team’s weekly recap of gold, domestic equities, natural resources, emerging markets and more.

Subscribe to the free weekly newsletter by clicking here!

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.

The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies.

Diversification does not protect an investor from market risks and does not assure a profit.

Standard deviation, or sigma, is a measure of the dispersion of a set of data from its mean. The more spread apart the data, the higher the deviation. Standard deviation is also known as historical volatility.

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Take Advantage of Volatility with Active Management
October 29, 2018

Take Advantage of Volatility with Active Management

October was at it again last week. After Wednesday’s close, the S&P 500 Index, Dow Jones Industrial Average and small-cap Russell 2000 Index had all erased their gains for 2018, while the tech-heavy NASDAQ Composite dipped into correction territory.

I don’t believe there’s any single cause for the selloff. Investors are simply nervous, thanks to rising interest rates and the upcoming midterm elections, among other things.

Meanwhile, gold performed precisely as we would expect it to. The price of the yellow metal jumped above its 100-day moving average, a bullish sign that could mean further moves to the upside if market volatility persists. On Friday, gold was trading at a three-month high of $1,246 an ounce.

The price of gold jumped above its 100 day moving average
click to enlarge

So can we expect additional volatility going forward? In a recent note to investors, Citibank says it estimates that “some more volatility is likely through December” due to the impact of trade disputes on growth, rise in U.S.-Saudi Arabia tensions and Brexit stalemate. Analysts point out, though, that the present slowdown doesn’t necessarily signal the end of the historic bull market. Compared to the start of the previous two bear markets, in 2000 and 2007, only four out of 18 factors are flashing “sell” right now on Citi’s “bear market checklist.” Among those factors are overinflated global equity valuations, a flattening yield curve and high debt levels.

The bull is “tripping, not dying,” Citi says.

But Is It the End of “Buying the Dip”?

The bull market might not be dead, but we could be facing the end of “buying the dip.” According to a report last week by Morgan Stanley, buying the S&P 500 after a week of negative returns was a profitable strategy from 2005 through 2017. That may no longer be the case, as you can see in the chart below. Buying the dip in 2018 has resulted in an average loss of around 5 basis points.

Average daily sp 500 return if previous week return was negative
click to enlarge

So what’s changed? I think the most significant difference between now and the past decade or so is that, for the first time since the financial crisis, central banks are finally starting to withdraw liquidity. This means cheap money is no longer as plentiful as it once was, for investors and corporations alike.  

Some might disapprove of President Donald Trump's criticism of Federal Reserve Chairman Jerome Powell for raising rates—Powell “almost looks like he’s happy raising interest rates,” Trump said—but he’s not wrong in expressing concern about the ramifications. I’ve shared with you before that a majority of recessions and bear markets in the past 100 years were preceded by monetary tightening cycles.

And there could be something else roiling markets right now.

Get Ready for $7.4 Trillion in Passive Index Selling

Last month I wrote about what I see as an imminent “passive index meltdown.” Over the past decade, billions of dollars have poured into ETFs and other passive investment products. This has led to a number of unexpected consequences, including price distortion and trading based not on fundamentals but on low fees. I said then that when these multibillion-dollar ETFs automatically rebalance, sometime at the end of this year or the beginning of next year, a correction of between 10 percent and 20 percent could be triggered.

JP Morgan sees 7 trillion dollars passive selling pressure in downturn

Now, other people are starting to recognize the risk this poses. Speaking to CNBC last week, Goldman Sachs CEO David Solomon said that this month’s selloffs have been prompted by “programmatic trading.”

According to Solomon, “some of the selling is the result of programmatic selling because as volatility goes up, some of these algorithms force people to sell.”

Remember the 2010 Flash Crash? In the days following the May 6 incident, the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) found that ETFs “suffered a disproportionate number of broken trades relative to other securities.” Of the securities that fell 60 percent or more that day, approximately 70 percent were ETFs.

But that was in 2010. Passive investing accounted for less than 30 percent of the assets under management (AUM) in actively managed funds. Today, that figure falls somewhere between 80 percent and 90 percent, representing some $7.4 trillion in “big selling pressure” concentrated in large- to small-cap equities, according to a report last week by J.P. Morgan.

“This is something worth noting at this late stage of a cycle given that passive investing seems to be trend following, with inflows pushing equities higher during bull markets, and outflows likely to magnify their fall during correction,” J.P. Morgan analysts Eduardo Lecubarri and Nishchay Dayal wrote.

The asset class with the greatest exposure to passive indexing, and therefore “momentum selling during market downturns,” is large-cap stocks, which have 10 times the passive AUM as small- and mid-cap stocks.

So how can investors prepare themselves?

Look at How Much Ultra-Short Treasuries Are Yielding Now

With riskier assets starting to look shaky, it might be time to ensure you have an adequate position in fixed income.

For the first time in over a decade, the three-month Treasury bill—the closest proxy we have for hard cash—is yielding more than the three main measures of U.S. inflation. That includes the headline consumer price index (CPI), which measures volatile food and energy prices. Bond yields and prices move inversely to interest rates, remember.

Short term yields higher than all main measures of inflation for first time in decade
click to enlarge

Ultra-short yields stood at 2.34 percent as of Friday, compared to a 2.27 percent change in consumer prices over the same period last year. This means that cash is finally yielding a positive real return for the first time in over 10 years, without inflation having to turn negative

What’s more, the three-month yield is well above the dividend yield for the much more volatile S&P 500 Index.

Short term yields higher than sp 500 index dividend yield
click to enlarge

With interest rates on the rise, it’s important to stay on the short end of the yield curve. Retail investors seem to agree. Last month, rate-sensitive investors poured more than $4.7 billion into actively managed ultra-short bond funds, which have an average maturity of just six months, according to Morningstar data.

Passive instruments are attractive because of low fees, but it’s important not to discount actively managed funds just yet, and especially now as volatility is spiking. As Wells Fargo put it in the most recent Monthly Market Advisor,“late-cycle market characteristics could present many opportunities for investors who hold quality actively managed funds.”

Mining & Investment Latin America Summit

On a final note, I’m pleased to share with you that Texas Governor Greg Abbott last week retweeted my article, “6 Reasons Why Texas Trumps All Other U.S. Economies.” Governor Abbott has done a fabulous job keeping Texas on a pro-growth trajectory, making the Lone Star State the very best in the U.S. to do business in, I believe. If you didn’t get a chance to read the article, you can click the screengrab below.

Greg Abbott Twitter Texas Frank Talk

Lastly, I’m incredibly honored to be the keynote speaker this week at the Mining & Investment Latin America Summit in Lima, Peru. My presentation will focus on how metals prices are being impacted by a combination of global growth and macro volatility. I’ll also be moderating a discussion on the political landscape in Latin American and its implications for the mining industry. I’ll be sure to share insights and observations from the conference in the days ahead!

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. By clicking the link(s) above, you will be directed to a third-party website(s). U.S. Global Investors does not endorse all information supplied by this/these website(s) and is not responsible for its/their content.

The S&P 500 Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies. The Dow Jones Industrial Average is a price-weighted average of 30 blue chip stocks that are generally leaders in their industry. The Russell 2000 Index is a U.S. equity index measuring the performance of the 2,000 smallest companies in the Russell 3000. The Russell 3000 Index consists of the 3,000 largest U.S. companies as determined by total market capitalization. The Nasdaq Composite Index is a capitalization-weighted index of all Nasdaq National Market and SmallCap stocks.

The Consumer Price Index (CPI) is one of the most widely recognized price measures for tracking the price of a market basket of goods and services purchased by individuals.  The weights of components are based on consumer spending patterns. The personal consumption expenditure measure is the component statistic for consumption in gross domestic product collected by the United States Bureau of Economic Analysis. It consists of the actual and imputed expenditures of households and includes data pertaining to durable and non-durable goods and services. 

The dividend yield is a financial ratio that indicates how much a company pays out in dividends each year relative to its share price. There is no guarantee that the issuers of any securities will declare dividends in the future or that, if declared, will remain at current levels or increase over time.

A basis point, or bp, is a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 1/100th of 1%, or 0.01% (0.0001).

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6 Reasons Why Texas Trumps All Other U.S. Economies
October 23, 2018

6 Reasons Why Texas Trumps All Other U.S. Economies

As many of you reading this know, I’m what you would call a Tex-Can. I was born and raised in Canada, but I’ve called Texas home for nearly 30 years. I can’t picture U.S. Global Investors headquartered anywhere else, even after traveling to all parts of the country and, indeed, the world. Texas just “gets it,” which is why I think CNBC recently named the $1.6 trillion economy the best state for business in 2018—the first time, in fact, a state has won four separate times since the network began ranking them 12 years ago.

Below are six reasons why I think Texas trumps all other U.S. economies.

1. Texas is a manufacturing powerhouse

Everything’s bigger in Texas, and that includes manufacturing. Last year, total manufacturing output from the Lone Star State was $226.16 billion, or about 10 percent of total U.S. manufacturing goods, according to the Federal Reserve Bank of Dallas. The industry supports more than 865,000 jobs in Texas, or about 7.1 percent of its workforce. And the average annual compensation for manufacturing was $82,544, compared to $46,642 for all nonfarm jobs, which helps boost the state’s gross domestic product (GDP). Finally, at a time when global manufacturing expansion is slowing, the sector in Texas continues to grow at a healthy pace.

Texas manufacturing sector continues to expand
click to enlarge

2. Texas is the largest exporting state

Texas is also known as the top exporting state in the nation, responsible for almost 20 percent of total U.S. exports. And they continue to grow at an impressive rate. According to the Dallas Fed, Texas exports rose sharply in July and were up 16 percent year-to-date, or about three times faster than U.S. exports, which increased 5.2 percent for the same period. Much of the growth in the Lone Star State is due to its monster oil and gas industry, which exported more crude than it imported for the first time ever in April, according to an August report by the U.S. Energy Information Administration (EIA).

Texas is the top exporting state
click to enlarge

3. Texans enjoy the fastest income growth in the U.S.

Thanks to a robust business environment, and the fact that it’s one of only four states without a corporate income tax, Texas residents enjoyed the fastest personal income growth this year between the first and second quarter. According to the Bureau of Economic Analysis (BEA), incomes expanded a whopping 6 percent in the June quarter, compared to 4.2 percent for Americans on average. This was the best rate among all 50 states. Earnings increases were led by professional, scientific and technical services.

Texas ranked first in income growth
click to enlarge

4. Texas is a global oil superpower

In case you haven’t heard, Texas is oil country—the number one producer in the U.S., accounting for more than 40 percent of national output—and that’s been a blessing for the state’s economy. Employment in oil and gas has led growth among its major sectors. Since Congress removed the crude oil export ban, oil and gas exports have gone from making up 5.2 percent of state exports to the largest share at 18 percent, or $45 billion over the past 12 months, according to the Dallas Fed. Investment bank HSBC now predicts that Texas will surpass OPEC members Iran and Iraq next year to become the world’s number three oil producer, accounting for over half of U.S. production.

Texas now accounts for over 40 percent of US oil production
click to enlarge

5. Everyone wants to move to Texas

Two years ago I wrote a piece about how everyone wants to move to Texas, and since then nothing’s changed. People still want to move here. Can you blame them? Of the top 10 fastest growing cities in terms of population, four were in Texas, according to the Census Bureau. In the number one spot was San Antonio, home to U.S. Global Investors. Between July 2016 and July 2017, the Alamo City attracted more than 24,000 new residents, and it now boasts some 1.5 million people. If we look at the fastest-growing U.S. cities by percent change, Texas takes half of the top 10 spots. In numbers one, two and three are the Texas cities of Frisco (8.2 percent growth), New Braunfels (8 percent) and Pflugerville (6.5 percent).

Four of the top fastest growing US cities are in Texas
click to enlarge

6. Everyone wants a Texas home

More residents means more demand for housing. The Lone Star State mostly avoided the house price bubble a decade ago, according to the Dallas Fed. As such, housing markets are currently tight in most of the state, and median prices remain near record highs. Texas A&M University’s Real Estate Center reports that sales grew 3.8 percent in July, reaching a record level of 29,456 homes sold through a multiple listing service (MLS). What’s more, Texas was the national leader in home permits, accounting for 16 percent of the U.S. total.

Housing sales in Texas have outpaced those in the US
click to enlarge

Curious to read more? Subscribe to our FREE, awarding-winning Investor Alert by clicking here!

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.

America's Top States For Business CNBC, a division of NBC Universal, has been ranking state business climates annually since 2007. CNBC's state rankings are based on 10 categories: Cost of Doing Business, Workforce, Quality of Life, Infrastructure, Economy, Education, Technology & Innovation, Business, Friendliness, Access to Capital and Cost of Living.

The Dallas Fed conducts the monthly Texas Manufacturing Outlook Survey (TMOS) to obtain a timely assessment of the state's factory activity. Firms are asked whether output, employment, orders, prices and other indicators increased, decreased or remained unchanged over the previous month.

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Here's How Hungary Reduced Risk Without Forfeiting Returns
October 22, 2018

Heres what Hungary just did to reduce risk without hurting returns

Hungary isn’t known today as one of the world’s top gold producing countries. There was a time, though, when it accounted for around three-quarters of Europe’s entire output of the yellow metal, if you can believe it. According to historian Peter Sugar’s A History of Hungary, the central European country was a “veritable El Dorado” in the 14th century, and its gold pieces circulated widely across the entire continent, competing with those minted in Italy and England.

It was this rich mining heritage that Hungary’s central bank evoked when it announced last week its decision to increase gold holdings tenfold, from 3.1 metric tons to 31.5 tons, taking gold’s share of total reserves to 4.4 percent. (Gold accounts for 73.5 percent of U.S. reserves, by comparison, the most of any country.) Hungarian central bank governor Gyorgy Matolcsy described the move as one of “economic and national strategic importance,” adding that the extra gold made the country’s reserves “safer” and “reduced risk.” This is the first time since 1986 that Hungary has increased its gold holdings.   

Hungary just boosted its gold reserves tenfold
click to enlarge

The country isn’t alone in its mission to diversify. This month we also learned that Poland became the first European Union (EU) member to increase its gold reserves in two decades. The Eastern European country added as much as 9 metric tons of hard assets between July and August of this year. Central banks in Russia, Turkey and Kazakhstan have also kept up their gold buying, representing close to 90 percent of the activity we’ve seen this year.

Meanwhile, the EU has continued to print paper money.

For more, watch emerging Europe analyst Joanna Sawicka’s full explanation by clicking here.

A Good Store of Value

So why should banks—or investors, for that matter—be interested in boosting their gold holdings? One reason is timing. Until recently, gold prices have been relatively affordable, trading at 52-week lows of around $1,180 an ounce in mid-August and at the end of September. Central banks’ investment was wisely made. From those lows, gold is now up more than 4 percent on stock volatility.

Check out the chart below. I think it’s fascinating to see the relationship between dramatic moves in the stock market and people’s interest in gold. When stocks sold off a couple of weeks ago, Google searches for “gold price” jumped to their highest in at least a month. This shows, I believe, that people recognize gold as a good store of value when market volatility reemerges.

Spike in Google searches for gold price corresponding with stock selloff
click to enlarge

Gold Has Helped Improve a Portfolio’s Risk-Adjusted Returns

Returning to what Hungarian central bank governor Matolcsy said about risk reduction, a certain amount of gold has been shown to improve a portfolio’s Sharpe ratio, according to the World Gold Council’s (WGC) most recent Gold Investor. The Sharpe ratio, in case you’re unaware, measures a portfolio’s risk-adjusted returns relative to its peers, based on standard deviation. The higher the ratio is over its peers, the better the risk-adjusted returns.

Performance of an institutional portfolio with or without gold
click to enlarge

Analysts at New Frontier Advisors found that an institutional portfolio with a 6 percent weighting in gold had a higher Sharpe ratio than one without any gold exposure. This means that volatility was reduced without hurting returns.

Although analysts were looking at Chinese portfolios in particular, the WGC’s Fred Yang believes these findings can just as easily be applied to portfolios that are invested in U.S.-, European- or U.K.-listed assets. The “research indicates,” Yang says, “that most well-balanced portfolios would benefit from a modest allocation to gold.”

I’ve often advocated for a 10 percent Golden Rule—with 5 percent in bullion, the other 5 percent in gold stocks—and so New Frontier’s research is illuminating. It also helps explain Hungary and Poland’s actions, as well as those of other net purchasers of gold.

Holding Firm Against Rising Treasury Yields

I’ve shown many times in the past that the price of gold is inversely related with real rates. The yellow metal has especially struggled when Treasury yields have outpaced inflation.

Gold price has remained strong despite a rising 2 year treasury yield
click to enlarge

The two-year Treasury yield, for instance, is just under 3 percent today, a more-than-10-year high. Because consumer prices are rising at 2.3 percent year-over-year, according to the latest report from the Labor Department, the two-year has a positive real yield—and this has historically weighed on gold.

You would think, then, that its price would be much lower than it is. I’m impressed with how well it’s held up.

Get more of my thoughts on gold’s performance by watching the latest Frank Talk Live! View it by clicking here!

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. By clicking the link(s) above, you will be directed to a third-party website(s). U.S. Global Investors does not endorse all information supplied by this/these website(s) and is not responsible for its/their content.

Standard deviation is a measure of the dispersion of a set of data from its mean. The more spread apart the data, the higher the deviation. Standard deviation is also known as historical volatility.

The S&P 500 Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies.

Diversification does not protect an investor from market risks and does not assure a profit.

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Take a Peek at What the Top 1 Percent Have in Savings
October 17, 2018

take a peek at what the top 1 percent in savings

You’ve likely seen the reports: A whopping 44 percent of Americans wouldn’t be able to afford a $400 emergency expense without borrowing it or selling something. That’s according to the Federal Reserve’s findings in 2017. And earlier this year, financial services firm Bankrate reported that only 39 percent of Americans would be able to pay off an unexpected expense of $1,000 from their savings alone.

These figures have long-term implications. When someone doesn’t have enough in their savings account to cover an unexpected $400 to $1,000 emergency, it raises questions about how prepared they are for retirement.

So how does your savings account stack up to the average American’s? How about the top 1 percent’s? And just as a reminder, the entry point to the highest of earnings brackets is “only” $480,930 a year, according to 2015 income tax data.

How Does Your Savings Account Stack Up?

Personal finance firm MagnifyMoney recently looked at how much Americans have in savings, based on income level. As of June 2018, the average U.S. household has $175,510 in savings, including bank and retirement accounts. Compare that to the average household in the top 1 percent, which has close to $2.5 million in savings.

These are averages, remember. If we look at medians, or the middle values of savings accounts, these numbers change dramatically. According to MagnifyMoney, the median American household has only $11,700 in the bank. This means that half of the approximately 126 million U.S. households have more than this, while the other half has less. The median top 1 percent savings account, by comparison, holds just under $1.2 million.

It’s clear that too few working-age Americans are preparing for retirement adequately, and many who are retired worry that they won’t be able to maintain the lifestyle they desire. According to the most recent Employee Benefit Research Institute (EBRI) survey on retirement confidence, only 32 percent of retirees—nearly a third—said they felt “very confident” in their ability to live comfortably during their years outside the workforce.

Not Your Father’s CDs

Besides not having enough in savings, many Americans aren’t doing enough to grow their wealth. Back when interest rates were close to 20 percent, thanks to former Federal Reserve Chairman Paul Volcker, yields on certificates of deposit (CDs) were attractive enough that many households favored them over riskier assets such as stocks.

Today, however, CDs—though protected by the Federal Deposit Insurance Corporation (FDIC)—just don’t yield enough to justify locking your money up for any period of time.

certificates of deposit rates have been slow to recover
click to enlarge

Now let’s take a look at the stock market. The S&P 500 Index is up almost 200 percent from 10 years ago. The compound annual growth rate (CAGR), then, is 11.6 percent. With dividends reinvested, the CAGR becomes 13.9 percent.

There’s a reason why Albert Einstein allegedly called compound interest the greatest invention in human history.

Too Few People Are Participating

The problem is that too few Americans have participated in this bull market. Of the bottom half of U.S. earners, only about a third own stocks, according to Fed estimates. Perhaps not surprisingly, the more a household earns, the more likely it is to invest in the stock market.

percent of US households owning $10,000 or more in stock by wealth class
click to enlarge

Take a look at the chart above, based on data produced by American economist Edward Wolff. Of U.S. households that rank in the top 1 percent, nearly 94 percent own $10,000 or more in equities. From there, the ownership rate drops off. Less than 5 percent of the bottom 20 percent of earners have $10,000 or more invested in the stock market, either directly or indirectly. Only 35 percent of all American households do.

If you ask someone why they’re not invested, chances are they’ll say that it’s too risky. It’s easy to see why they might feel this way, especially after the huge selloff last week.

Stocks Have Been Up for the 10-Year Period

But when you have a long-term view—10 years or more, for instance—investing in the stock market looks very attractive. As my friend Marc Lichtenfeld put it during an interview back in August, stocks have historically been up for the 10-year period.

In fact, the only two times when stocks weren’t up for the 10-year period, according to Marc, were “the middle of the Great Depression and in 2008-2009 during the Great Recession. You would literally need to cash out in the middle of historic downturn not to make money over 10 years, and that’s if you sold right at the bottom. If you had waited another year or two, you might have come out at least breaking even, if not better.”

Cost is another reason some people aren’t invested—but it doesn’t have to be a barrier. With the ABC Investment Plan, investors can invest a fixed amount in a specific investment at regular intervals. The minimum investment with the ABC Investment Plan is just $1,000 initially and then $100 per month.

Learn more about the ABC Investment Plan by clicking here.

 

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. By clicking the link(s) above, you will be directed to a third-party website(s). U.S. Global Investors does not endorse all information supplied by this/these website(s) and is not responsible for its/their content.

The CD interest rate is typically fixed and payable on a set maturity date. The CD rate and principal are typically insured up to $250K.

The Retirement Confidence Survey (RCS) is the longest-running survey of its kind, measuring worker and retiree confidence about retirement, and is conducted by the Employee Benefit Research Institute (EBRI) and independent research firm Greenwald & Associates.

The S&P 500 Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies.

The ABC Investment Plan doesn’t assure a profit or protect against loss in a declining market. You should evaluate your ability to continue in such a program in view of the possibility that you may have to redeem fund shares in periods of declining share prices as well as in periods of rising prices.

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Net Asset Value
as of 11/20/2018

Global Resources Fund PSPFX $4.71 -0.11 Gold and Precious Metals Fund USERX $6.38 -0.12 World Precious Minerals Fund UNWPX $3.12 -0.05 China Region Fund USCOX $8.01 -0.08 Emerging Europe Fund EUROX $6.14 -0.16 All American Equity Fund GBTFX $24.39 -0.36 Holmes Macro Trends Fund MEGAX $17.97 -0.19 Near-Term Tax Free Fund NEARX $2.19 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change