One of the arguments used against having gold serve as a form of money is that the money supply has to grow.  While new gold is mined from the earth, it may not be enough to keep up with production, argue the gold critics.  Even some who are otherwise sympathetic to the free market will use this as an argument against gold.

If production increases at a faster pace than the gold supply (or any form of money), it is argued by some that this will not accommodate the demand for money.  Small amounts of gold already carry a high value, and this will only be exacerbated with increased production.

As I write this, gold is valued at about $1,250 per ounce.  Of course, if gold were used as a medium of exchange, we wouldn’t worry about the dollar value of gold.  We would worry about the weight of gold.  If the dollar were fully backed by gold, then the dollar/ gold price should stay the same.

Let’s say, for simplicity, that gold is valued at $1,000 per ounce.  That means that for a one dollar item, you would need to pay with 0.1% ounces of gold, or 1/1,000th of an ounce.  If capital investment and technology increase production at a strong pace (which is more likely under a free market monetary system), then that $1 item will likely gradually decrease in price.  This happens today with electronics, in spite of the existence of monetary inflation.

If that same item eventually went down to 10 cents, then you would need 0.01% ounces of gold, or 1/10,000th of an ounce.  It gets to be hard to pay with this amount of gold.  You would have to start using gold dust.

The market may turn to another metal (such as silver), or some other commodity, that has a lower value per unit.  But with today’s technology, there are many other options.

You could still use dollars (backed by gold) or some other type of certificate that represents gold.  A gold warehouse could issue 10,000 certificates that each represent 1/10,000th of an ounce of gold. The gold warehouse stores the gold, and the certificates are redeemable in gold.  The warehouse could put limitations on redemption, such that someone could not walk in with one certificate and redeem a tiny speck of gold.

With today’s technology, it is also not hard to imagine electronic digits that are backed by gold.  You could have a bank checking account with a certain amount of money that is backed by gold.  You could buy an item for 10 cents or 1/10,000th of an ounce of gold using a credit card, or a debit card, or your smartphone.  It might be something similar to Bitcoin, except the currency would actually be backed by gold.

The point is, the free market would figure this out.  It doesn’t have to be centrally planned.  With today’s technology, it would be rather easy for competing businesses to figure out efficient methods for using money.

And if things get continually cheaper simply because of increased production, this should be celebrated.  Price deflation that is a result of increased production means that we can purchase more with our money.  It ultimately means a higher standard of living.

After the shooting in Alexandria, Virginia, it was discovered that the shooter was a Bernie Sanders supporter.  Bernie Sanders was quick to repudiate the act of violence.  And to be clear, just because the guy was a Sanders supporter, it in no way makes Sanders guilty of anything.  Bernie Sanders, or anyone else, is not responsible for the actions of others, unless maybe you are talking about young children.

My issue here is that Bernie Sanders, in condemning the violence, was contradicting everything he stands for.  Sanders has been better than the average politician on foreign policy, but even here he had no problem supporting the war hawk Hillary Clinton when it came time.  But even more to the point, Sanders is a self-avowed socialist.  Since he is using the state to employ his socialist means, he is endorsing violence.

In Sanders’ statement about the shooting, he stated the following: “Violence of any kind is unacceptable in our society and I condemn this action in the strongest possible terms.  Real change can only come about through nonviolent action, and anything else runs against our most deeply held American values.”

But the socialism that Sanders advocates is violence.  There are many different definitions of socialism.  There is the definition where it means the state has ownership over the means of production.  In Sanders’ case, he is basically representing some form of more extreme Keynesianism and welfare.  He believes in a massive government welfare system where the rich are forced to further subsidize the poor.

Regardless of what Sanders means when he refers to himself as a socialist, he wants to use the state to enforce his agenda.  He is not advocating a socialist system that is voluntary.  If a bunch of people want to get together and have their own socialist system that does not force anyone to take part, then there should be no objection, including from libertarians.  Whether or not it is smart makes no difference, as long as it is voluntary.

But when you use the power of the state, as Sanders wants to do on an even bigger scale, you are using the threat of violence, and ultimately violence.

It is no coincidence that every hardcore socialist society ends up as a tyrannical society.  This is where you see mass murder, massive injustice, violence, and political repression.  The reason is because this is ultimately what socialism comes down to.

If you are trying to enforce state socialism, not everyone is going to go along, especially when living standards are low or declining.  At some point, the socialists in charge have a decision to make.  They either have to give up on their idea of socialism (or at least back off on the most extreme parts), or they have to employ severe violence.

Virtually every state action is backed up by violence or the threat of violence.  But when state socialism is carried out, this violence becomes far more severe, and far more apparent.

When you point out Venezuela, or China under Mao, or the Soviet Union, the socialists will say that these are not examples of what they want.  They will say that these socialist systems were not properly implemented, or were not true socialist societies.  But these examples are socialism brought to the ultimate conclusion of mass murder and tyranny.  This is what happens when socialism is enforced to the fullest.

When Sanders says that violence of any kinds is unacceptable, he really means that violence not committed by the state is unacceptable.  In his view, it is perfectly acceptable for the state to use violence, or else there would be no way for him to implement his socialist vision, whatever that entails.

If Sanders really wants to condemn violence, he should start by abandoning his socialist views.

Whoever planned the Federal Open Market Committee (FOMC) calendar gave us a real treat and put the Fed in a rather difficult position.

The FOMC wrapped up its latest meeting on Wednesday, July 14, 2017 and released its statement on monetary policy.  This was followed by a press conference by Janet Yellen.

It was widely expected that the Fed would raise its federal funds target rate by one-quarter percent, which it did.  The rate is now between 1% and 1.25%.  The Fed will now pay banks 1.25% on their reserves.

The problem for the Fed is that the statement on monetary policy was released after the CPI report had come out earlier in the day.  The consumer price index numbers were lower than expected.

For May, the CPI actually came in at -0.1%.  The year-over-year decreased to 1.9% after being above 2% for several months before.  Even the usually-steady median CPI went lower.  The year-over-year median CPI dropped to 2.3%.  It was 2.5% back in March.  This may not seem like much of a deceleration, but the median CPI has barely moved for a long while now.

If consumer prices are increasing at a slower pace, or even decreasing, it is not likely due to massive productivity gains.  Although this would be likely in a true free market environment, it is hard to believe that there are major productivity gains right now that are driving down consumer prices.  In the electronics industry, this has been happening for decades, despite the continual inflation.

A deceleration in consumer prices is mostly due to an increase in the demand for money.  Put another way, velocity is slowing.  Money is changing hands less frequently.  It indicates a likely softening in the overall economy.  This is in spite of the fact that the stock indexes are hitting all-time nominal highs.

The FOMC was expected to hike its target rate in June.  If it had failed to do so, I think people (especially investors) would have mostly reacted negatively.  They would have seen it as a sign that Fed officials see a weak and vulnerable economy.

On the other hand, the CPI numbers are indicating a possible softening of the economy.  So the Fed had to hike its target rate in the face of a softening economy.  Is this the beginning of the end for this phase of the bubble?

In addition, the Fed is now addressing its bloated balance sheet, which approximately quintupled between 2008 and 2014.  How is the Fed going to drain off assets of trillions of dollars?  This is especially difficult with mortgage-backed securities, some of which are now virtually worthless.

You can read the Fed’s plan here, if you want to call it that.  It “anticipates” that it will reduce Treasury holdings by $6 billion per month, and then increase its reduction in increments of $6 billion at three-month intervals until it reaches $30 billion per month.

For mortgage-backed securities, it will reduce its holdings by $4 billion per month initially, and then increase it in $4 billion increments every three months until it reaches $20 billion per month.

In other words, the Fed – if it follows through – will eventually be reducing its overall balance sheet by $50 billion per month.  This will be monetary deflation.  It will do this by not reinvesting the principal payments on maturing securities.  It will technically not be selling off assets.  It just won’t roll over as much each month.

I don’t think anybody thinks the Fed will reduce its balance sheet to anywhere near the level that it was prior to the fall of 2008.  The Fed’s statement itself says this.  But I have bigger doubts than just the size of the reduction in the balance sheet.  If the latest CPI numbers are indicating a softening economy, what happens to the Fed’s plan if we hit a recession?  Imagine that stocks go into a massive downturn.  Is the Fed really going to engage in monetary deflation while this happens?

I hope the Fed does follow through, but you can see that I remain extremely skeptical.  If we hit a big enough recession, not only do I think there will be no monetary deflation, but I also think we may see more quantitative easing (monetary inflation).

The Fed has actually gotten off rather easy over the last several years.  It was able to engage in massive monetary inflation, yet consumer prices have been rather tame.  The massive increase in excess reserves at commercial banks accounts for much of this.

Sometimes when things just hum along, you assume that they will stay that way for a long while.  Sometimes it is true.  This bubble has lasted longer than I thought it would.  But at some point, something gives.  The Fed has already kept the monetary base stable for the last 2 and a half years.  If it goes into monetary deflation mode now, I don’t know what is going to support the stock markets.  Stocks seem to be the biggest of the bubbles in this economy.

If stocks hold up for a while longer, then maybe we will get to this phase of monetary deflation.  If stocks give out, I don’t expect the FOMC’s plan to come to fruition.  It will be back to its Keynesian ways of creating money out of thin air.

We need a good correction for the benefit of consumers.  We need a reallocation of capital that is in accordance with consumer demand.  Unfortunately, if and when we get such a correction, I don’t think the Fed will do nothing.

I recently wrote a post saying that investors should not expect an 8% return on a long-term basis by investing in the broad stock market.  This is particularly true if you account for inflation.  If the economy cannot even grow at an annual rate of 3% – even according to the government’s own statistics – why should we expect an easy 8% return that is sustainable?

It is easy right now to think that an 8% return is a reasonable assumption, given that stocks are hitting all-time nominal highs, while the government’s reported consumer price inflation is relatively low.  The problem is that we go through bubbles and busts, and we don’t know when the next bust is going to hit, or how hard it is going to hit.

While the government’s CPI numbers are showing price inflation to be around 2% per year, this likely understates the impact of the Fed’s monetary policy.  True inflation is the increase in the money supply.  The rising prices are one effect of this.  If productivity is still increasing, or the demand for money is increasing, then the price inflation numbers may not be telling us the full impact of the Fed’s previous loose monetary policy (2008 to 2014).

Therefore, even if we do get an average of an 8% return on stocks, actual inflation could be higher than the reported price inflation of approximately 2%.  If actual inflation is, let’s say, 4%, then your 8% return is really just 4%.

I cannot predict what nominal returns on stocks will be over the coming years.  It could be negative.  It could be flat.  It could be 100% over the next decade.

Here is the problem.  If consumer prices double over the next decade along with stocks, then your 100% return is actually nothing.  Actually, it is worse than nothing because you will owe taxes on your 100% “gain”.

In a world without any monetary inflation, the broad stock market index would not likely see wild swings.  Over time, it would not go up or down a lot.  Individual stocks would certainly go up or down depending on their profitability and their future outlook for profitability.  But the broad market would not likely see significant capital gains.

This does not mean it would not be beneficial to own stocks.  You are owning a piece of a company.  The company can pay dividends.  In a free market, a company likely would pay dividends if it is profitable.

You would also be gaining purchasing power.  If you own a stock that pays an annual dividend of 3%, and you sell it 5 years later for the same amount you paid for it, then in a free market setting without monetary inflation, you would likely have gained purchasing power.  It would have been the same as holding it in cash.  But by taking the risk of investing it, you got an annual return of 3%, plus the gain in purchasing power.

I am not saying we should live in a world with no monetary inflation, but I am saying that it would overall be beneficial as compared to what we have now.  In a true free market, it would be up to the market to decide what to use for money.  Historically, this has been gold and silver.  Even with gold and silver, there is some inflation due to more of the metals being mined from the ground.  But this requires extensive capital and labor in most cases, and it is not a political event.

My main point here is that stocks have been highly politicized with government regulations, taxes, and the Fed’s monetary policy.  In a true free market, we would be looking at more dividends and less in the way of capital gains.  The only reason the broad stock market goes up is because of monetary inflation.  And what the Fed giveth, the Fed taketh away.

In other words, you can’t have the bubbles without the busts.  It is a highly distorted market.  But it doesn’t just go one way.  Unless the Fed goes towards hyperinflation (which I don’t think it will), then you can’t expect for stocks to always go up, even in nominal terms.

I think there is a place for stocks in a well-diversified portfolio.  In the permanent portfolio, the recommendation is to hold 25% in stocks.  But I think it is a bad idea to think you are going to get anywhere close to an 8% return by investing in stocks, particularly if you take inflation into account.

I am a huge fan of compounding interest.  It is a very powerful concept, and it is a concept that can serve you well if you learn it early enough in life.

If you make a 10% annual return on an investment of $100, then you will make $10 for the first year.  But if you reinvest your return ($10), then you will earn interest on that the following year, in addition to your initial investment of $100.  Therefore, you will earn $11 in the second year (10% of $110).

You don’t have to wait 10 years to double your money, earning $10 of a return each year.  According to the Rule of 72, you only have to wait just over 7 years to double your money.

I used that 10% assumed return as an example.  But I don’t suggest that you will get a 10% return.  Unfortunately, many in the community of financial advisors like to assume high returns.  I hear the 8% assumption quoted often.

The people using this assumption will correctly admit that nobody is going to get a return of exactly 8% every year.  You can’t find a bond or annuity that will pay that high, at least for a relatively safe investment.  This 8% assumption is supposed to be an average because supposedly that is the return you should expect from U.S. stocks.

You will hear something to the effect of: If you can put aside $100,000 by the time you are 30 years old, then you will have over $1,000,000 by the time you retire at 60, assuming an 8% return on your investments.

It is quite an assumption.  I could say: If you can practice shooting and dribbling a basketball a couple of hours per day, you too could be like LeBron James, assuming that you are 6 feet 8 inches tall and have lots of natural talent.

This 8% assumption isn’t just a little optimistic.  It seems flat-out ridiculous for any serious retirement or financial independence planning.  I think a more reasonable number is around 3% above inflation, but that may even be pushing it.

There are a few select individuals who will earn an average return of 8% per year.  They will be business owners.  They will be real estate investors.  Most of them won’t be stock market investors.

I know the standard Warren Buffett advice that you should stick your money in a low-cost index fund.  We all know that U.S. stocks always go up in the long run (said somewhat sarcastically).

I am always quick to remind people of the Japanese stock market.  It hit its all-time high in 1989 (reaching almost 39,000) and has come nowhere close to that number since.  Today it is around 20,000.  How has the buy and hold strategy been working out for the Japanese investor who put his money in the market in 1989?  It has almost been 3 decades.  Is he supposed to wait for 4 decades?  He still needs a return of almost 100% just to get back to his initial investment.

I understand I am using a bubble market at its peak for my illustration.  But it still makes the overall point.  I am not saying that U.S. stocks will be like Japanese stocks.  I am not making any predictions.  I am just suggesting the possibilities.

Since the 2008 financial crisis, the U.S. economy has not seen one year of 3% GDP growth.  While the GDP may not be the best statistic, it is useful enough in this case.

If an economy has had less than 3% annual growth for a decade, why should the average investor expect annual returns of 8%?

Again, I emphasize the word “average”.  There will be a select few who do earn these returns.  But can anyone just stick his money in an S&P 500 index fund and expect an average of 8% annually when the economy can’t even grow at 3%?

It is easy to make these assumptions now when stocks are in a bull market despite a rather lackluster economy.  But what happens when we hit a period of stagnation?  What happens when price inflation eats up your returns?

And that brings us to a very important topic related to all of this.  Does this 8% annual return assumption account for inflation?  In nominal terms, a return of 8% might easily be possible in the future.  But if price inflation is 8%, then you are actually losing purchasing power because you will be taxed on your 8% earnings at some point.

In any scenario of retirement or financial independence, you have to account for inflation.  It is probably the hardest factor to plan for.  You can’t make plans based on an assumption of 8% returns if price inflation is going to eat up your purchasing power.  Even with the Federal Reserve’s target of 2% price inflation, that still lowers the return quite a bit.

This is just one of the reasons I like the permanent portfolio.  It has an inflation bias.  You are more likely to get higher nominal returns during periods of higher price inflation.  This makes up for the lost purchasing power of your money.

I don’t think this 8% assumption takes into account overall economic growth.  If the overall economy is growing slowly, then you should not expect an easy 8% return over the long run.

Imagine if someone had taken one hundred dollars and invested it when Jesus was born over 2,000 years ago. (I know that U.S. dollars did not exist at this time and that $100 at that time would have been a lot of money, but just go with this example.)  If that person’s initial wealth, with reinvested returns, had been passed on down the family through the years, how much would that family have today having earned just 1% compounding?

After 2,017 years, with an initial investment of $100 at 1% annual return, it would now be worth over $50 billion.  If that person and his heirs had been able to earn anything close to 8% interest annually, then the family today would have more money than what exists in the world.  In other words, the 8% return was impossible.

If you don’t like the example in dollars, do the calculation in gold ounces.  If someone had invested one ounce of gold and it returned 1% interest (.01 ounces of gold) annually compounded, then the family would have over 500,000,000 ounces of gold 2,017 years later.  This is with a return of just 1%.  At an 8% return, it would be far more gold than what exists on the planet.  In other words, it wouldn’t have been possible.

Now, a family today with an inheritance would be thousands of times richer than the ancestors of 2,000 years ago simply because of the purchasing power and the choices available today.  There was no air conditioning, or televisions, or smartphones, or air travel, or cars, or refrigerators back then.

My overall point though is that this 8% assumption as an average annual return is a very dangerous assumption that is going to hurt a lot of people who currently think they are on the path to financial independence.  One major economic recession can ruin a lot of hopes and dreams quickly.  Unless we get great economic growth in the years to come, there is no reason to expect anything close to a consistent 8% annual return.

You should save some of your money and let it work for you.  This is being future oriented.  It is the mentality of the upper class.

What you should not do is delude yourself into thinking you are going to consistently get a return of 8% above price inflation on your investments.  If you are a great entrepreneur investing in your own business or businesses, then maybe you can make this assumption.  But for stock investors, you are chasing after a dream that will turn into more of a nightmare.

If economic growth stays anemic at below 3%, you should not expect 8% returns or anything close to it over the longer term.  It is better to be conservative with your estimates and have too much money than to overestimate your returns and wind up with too little.

While the stock market continues to boom, interest rates on U.S. government debt are sending a mild signal of caution.  The yield curve has been flattening.

An inverted yield curve – where long-term rates are lower than short-term rates – is a signal of recession.  Investors are locking in longer-term rates, while borrowers are going after shorter-term loans.

On January 3, 2017, the 3-month rate on U.S. Treasuries was 0.53%. The 10-year yield was 2.45%.

On June 2, 2017 (5 months into the calendar year), the 3-month yield stood at 0.98%.  The 10-year yield was at 2.15%.

In other words, shorter-term rates have risen, while longer-term rates have fallen.  The change is not dramatic, but it is not insignificant either.  The yield curve is flattening.

We’ll see if this trend holds.  There have not been any really major movements during this time.  It has been mostly gradual.

One question is: Why are longer-term rates falling when the Fed is essentially promising hikes to its target federal funds rate?

Another question is: Why are longer-term rates falling when stocks have been booming and hitting all-time nominal highs?

There is a disconnect between long-term rates and stocks.  Stock investors are telling us to let the good times roll.  Meanwhile, bond investors are telling us to throw up the caution flag.  Which one is right?

I think stock investors have more influence in the short term.  We all know that bubbles can last far longer than it seems possible.

With that said, the bond investors tend to get the last laugh.  I tend to put my money on the bond investors over the stock investors in the longer run.

This question gets harder to answer with each passing year.  It may start to get easier to answer if tuitions keep rising at the same pace.

Price inflation has been relatively low since the early 1980s, but especially low in the last decade.  Of course, I use the term “relatively”.  We get ripped off by the central bank through the depreciating currency.  But compared to the 1970s, or compared to most third-world (or even some first-world) countries today, price inflation is relatively low for the holders of U.S. dollars.

However, college tuition keeps rising at a faster pace than the reported price inflation.  Even if you think the price inflation numbers put out by the government are significantly understated, there is little doubt that the cost of college is rising faster than most consumer goods.  The one major exception to this is medical care costs, or insurance premiums in particular.

We talk about stock bubbles or real estate bubbles, but we don’t hear much about a college bubble.  It is certainly a different animal, but I do think there is something of a college bubble.  I don’t think the trend is sustainable.  At some point, it becomes just like housing in the mid 2000s.  Middle class people just can’t afford it anymore, even with creative loans.

I have no idea when this college bubble will pop.  I don’t know if it will be gradual or rather sudden.  It isn’t going to be as sudden as stocks, or even real estate.  I assume that college tuitions are not constantly changing throughout the year.

There is value in a college degree for employment.  Whether you think college in itself is valuable is almost irrelevant.  The fact of the matter is that it is used as a screening device by many employers.  I don’t know whether they want to find someone who can tolerate four years of boredom, or whether they actually think it makes you smarter.  Or maybe the college degree just shows that you are capable of finishing what you started.

I know there are statistics quoted about college graduates making a million dollars more during a lifetime than non-graduates (or whatever the statistic is now).  This presents one of the common mistakes people make in economics.  It is confusing correlation and causation.

Are college graduates making more money because of the skills they learned in college?  To a certain extent, they may be making more money because they have the degree that gets them past a certain screening point with the employer.

My bet is that these college graduates would have made more than average even if they hadn’t gone to college.  Unfortunately, this is impossible to prove either way.

To answer the original question (Is a college education worth it?), I think it is an individual question.  It depends on each individual’s circumstances and goals.

If you really just want to learn, I would suggest doing research on the Internet and reading books.  You will probably learn more this way.  If there is something specific you want to learn, you can always take a specific class.

If you want to be a doctor or lawyer, you pretty much have to go to college because of the government’s certification requirements.  The same goes for a few other professions.

If you just want to make more money in your life, I think it is important to narrow down what you want to do and how much a degree with benefit you.

Of course, the biggest factor is the cost of the degree.  I wouldn’t recommend spending six figures for a four-year degree no matter what school it is or what degree you are getting.  If you can go to a cheap local school for a few thousand dollars per year, then it makes the decision easier.

Another option is that high school students can often take classes to get college credits, or they can take exams to test out of certain college classes.  If you can gain a significant number of credit hours before actually setting foot on a college campus, it could reduce your costs considerably.

I don’t think parents necessarily owe a college education to their children.  It is nice if you can help out, but you shouldn’t feel obligated, particularly in today’s economy.  You can let them live at home (rent free) while they attend classes.

If you have young children, I wouldn’t stress out about saving for a college education.  If the college bubble pops, it may solve your problem.  I think competition, coupled with the Internet, will help reduce costs in the long term.  I also think more companies will realize that a college degree doesn’t mean as much as it did in the past.  It is better to find a good employee that is able to adapt and learn new skills quickly.

I don’t recommend 529 plans at all.  If you want to save, just save in a traditional taxable account (or in a Roth IRA where you can still withdraw the principle without penalty).  You can decide later if you want to use some of the money to help your kids.  When the time comes, maybe you would rather spend money to help them buy a starter house or start a side business.

The best gift you can give your children is to prepare them for life.  This doesn’t have to include a college education.  It would be better if your child learns entrepreneurial skills that can be used at any time.  It is better not to be dependent on an employer.

A college education is only worth it if it will further your life goals without burdening you with the costs.  You can always choose to work for an employer and slowly get your degree.  Maybe the employer will pay for it.

In conclusion, it is best to focus on what you want to do and whether a college degree is necessary to achieve that.  If you do need or want a college degree, find ways to reduce the costs.  You don’t want to be burdened with debt when you are just starting out.

For anyone who has read any of my investment advice, you probably know that I advocate setting up a permanent portfolio similar to what is described by Harry Browne in the book Fail-Safe Investing.

Harry Browne passed away in 2006.  I was lucky enough to meet him in person before he left us.  He was very influential for me in both political (libertarian) philosophy and investment philosophy.

While the best part of his book Fail-Safe Investing is the description of the permanent portfolio, I would like to emphasize that there are other key basic points in this book that should not be overlooked.  Some of them are seemingly obvious, yet it is surprising how many people violate these simple things.

He breaks the book into 2 parts.  The first part is “The 17 Simple Rules of Financial Safety”.  The second part is “More about the Rules”, in which he goes more into depth.

Here are just a few of the rules, although they are all important in some way.

• Rule #1: Build Your Wealth upon Your Career
• Rule #3: Recognize the Difference between Investing and Speculating
• Rule #4: Beware of Fortune Tellers
• Rule #9: Do Only What You Understand
• Rule #17: Whenever You’re in Doubt, Err on the Side of Safety

His most important, of course, is Rule #11: Build a Bulletproof Portfolio for Protection.  This is where he describes the permanent portfolio and the importance of diversification to protect your investments in any economic environment.

Browne stresses throughout the book that you should not invest in anything that you don’t understand, and that you should only speculate with money you can afford to lose.  He also makes the point – which most investors don’t want to hear – that most of your wealth will be gained from your career.  You probably aren’t going to get rich by investing.

In Rule #4: Beware of Fortune Tellers, Browne is essentially invoking Austrian economics, even though he doesn’t call it this.  He is recognizing that economics is based on human action.  Human action will determine which investments go up and down.  It is the decisions of millions of people every day that drive the markets.

As Browne states in his book, “The beginning of investment wisdom is the realization that we live in an uncertain world – and that no one can eliminate the uncertainty for you.”

This is particularly interesting because Browne first gained notoriety by correctly predicting the devaluation of the dollar in the early 1970s.  While he said that he basically got lucky in this prediction, I think he did have a good understanding of central banking and the financial markets, and his prediction was nothing more than a good prediction of human action – in this case, that politicians would continue to spend money and run up deficits.  There was no way the U.S. could continue to keep the dollar on an international gold standard.

While Harry Browne was an optimist in general – he said that human nature was on the side of liberty – he perhaps underestimated the powerful arguments to be made against central banking.  He did not think that talking about the Federal Reserve to non-libertarians was a good way to persuade them towards a more libertarian position.  Ron Paul showed otherwise in 2007 when his opposition to the Fed was one of his main positions that he emphasized (probably second to foreign policy).  Ron Paul ended up going to rallies with chants of “End the Fed.”

When Harry Browne made his predictions against the U.S. dollar, he wrote a book titled How You Can Profit From the Coming Devaluation. The second half of the book may not be timely, but it is still an interesting read.  The first 70 pages are just as relevant today as they were then.  It is a great explanation of money.  If only these 70 pages were read by high school students.

Browne went on to write several investment books, as well as a couple of libertarian books, and a self-help book.  In terms of investment books, I would still start with Fail-Safe Investing.  They are simple but important rules, and it describes the permanent portfolio that I believe is so important for wealth preservation.

The price of one bitcoin is currently trading just over $2,000 after a wild week of ups and downs.  It was more ups than downs though.

The price of one bitcoin reached $1,000 at the beginning of 2017.  It went above and below the $1,000 mark a few times.  It was just a couple of months ago that the price of one bitcoin was trading below $1,000.  It has more than doubled in a couple of months.

Of course, when we talk about the price of Bitcoin, we are talking about the price in U.S. dollars.  I have been quick to point out that Bitcoin is not money, as it is not widely desired.  I still challenge anyone to walk into a Walmart or their local grocery store and try to pay with bitcoins.

I understand that there are a few online retailers who will accept Bitcoin, and there are even some charities and institutes that will be more than happy to accept donations in Bitcoin.  But the point is that it is not widely recognized as money.

In the last week, it was easy to hear owners of bitcoins say that their bitcoins are gaining value.  If the price of bitcoins were to fall, would you hear holders of dollars cheer in the fact that their dollars were gaining value?  Do you see the point here.  The only reason that owners of bitcoins are excited is because the per dollar value has increased.  It is still dollars that serve as money, whether you like it or not.  It is dollars that serve as our basis for judgement.

I still do not see Bitcoin serving as a main form of money in the future.  I can understand why someone in Venezuela might want to convert his wealth into Bitcoin.  I would certainly take my chances with Bitcoin over the Venezuelan bolivar.

Bitcoin has some qualities of being a good form of money, but it also has some bad qualities.  It is similar to any fiat currency in the fact that it is basically worthless if not for the fact that it is considered, at least by some, to be a form of money or a potential form of money in the future.

You can’t say the same thing about gold.  Gold is used in jewelry and for some industrial purposes.  Gold has the characteristics of a form of money.  It is why the market chose gold (and to a lesser extent silver) as a form of money thousands of years ago.

This isn’t to say that you can’t make money (U.S. dollars) with Bitcoin as a speculation.  But this doesn’t make it money.  You could have also made money buying stock in Amazon.  This doesn’t make Amazon stock a form of money.

The key here is that you have to convert your speculation back into U.S. dollars to make it useful in most cases.  You can spend your U.S. dollars almost anywhere.

The Bitcoin market isn’t for me right now, but that’s not to say it won’t go higher (in terms of U.S. dollars).  It is a speculation.

I do think Bitcoin is a bubble.  I think the whole idea is a bubble.  I would be very surprised if Bitcoin was worth anything of any significance 20 years from now.  In the long term, I expect gold to beat Bitcoin as a form of money.  Gold has the characteristics of money, and it also has thousands of years of history on its side.

Just to clarify, although Bitcoin is probably a bubble investment, it doesn’t mean it can’t go higher.  It doesn’t mean it can’t go significantly higher before falling.  That is one of the marks of a bubble.  Things go up far beyond what is rational.  It becomes a mania.

I have no opinion on what the price of a bitcoin will be next week or one year from now.  It is a game for gamblers.  I have nothing against gambling if you are taking calculated risks with money you can afford to lose.  I just suggest that you not rationalize your speculation by saying that Bitcoin is the money of the future.

What is the best investment that you can make at an early age?

Before I answer this, allow me to give a little background of my own history.  I had my share of risk taking in my younger years.  I am much more conservative now, although I still like to dabble in mining stocks.

I advocate a permanent portfolio for relative safety.  Preservation of wealth should be your main goal unless you are swinging for the fences.  Even if you are swinging for the fences, it is still better to have some money tucked away that is secure.

The worst investments I ever made were in options.  At least I never bought futures.  With options, you are at least limited in your losses. I had some success with options early on, but ended up losing money.  It was my own swing for the fences.

I have traded individual stocks over the years, but there is nothing that really sticks out.  I have had winners and losers, just like anyone else who trades individual stocks.  I bought Groupon early on, and that has been a loser.  I bought a few ETFs that I held onto too long after the financial crisis and stock crash back in 2008/ 2009.

My biggest fault in trading individual stocks was the fact that I sold my winners too soon.  I bought Amazon in the late 1990s, but I was in and out.  If I had held onto it, I would be up by 10 times now.  Of course, that would have been over the course of over 17 years.

I also bought Apple in the 2000s.  I sold it for a decent gain, but I would have made much more if I had held the stock.

I had a good run with some mutual funds that invested in mining stocks before they turned down around 2011.  I have had some losses since then, so it is hard to brag too much about the gains.  You have to count both sides.

There are two things I consider my best investments.  The first was buying gold around the year 2000.  Even with the gold price significantly off its all-time high, I am still up about 4 times the nominal dollar investment.  I first bought when it was around $300 per ounce.

The second best investment was putting some extra money into the principal amount of my mortgage.  This was over a decade ago.  At that time, the rate was near 5%.  When you can get a tax-free rate of return that is guaranteed at near 5%, you should almost always take it.

There is one investment I didn’t make when I was young that I wish I had made.  This may sound cliché, but I wish I had invested more in myself or in some kind of side business.

When I think of the opportunities missed, especially in the beginning era of the Internet, it makes my head spin.  When I was swinging for the fences with options, I should have been using that money to try different side businesses.  Sometimes it is worth taking a thousand dollars and just trying something to see if it takes off.  If I had done that once per year for five years, I think something would have stuck.

The first question of this post asked: What is the best investment that you can make at an early age?

My answer is that the best investment is investing in yourself.  Actually, this probably applies to almost any age.

If you can gain valuable skills, learn the ins and outs of a particular business, learn how to build a web site, learn how to build an app, learn how to write copy, learn how to market your products, etc., then you will be set.  You will likely make more money from these skills than you could ever hope to make with traditional investments.

I still focus on financial investments and helping others because I think it is important to preserve the wealth you have already accumulated.  But your income minus your expenses (your savings) is going to determine a lot about your wealth.  It is likely going to matter a lot more than your financial investments.

I think a lot of people waste money paying financial advisors.  I think a lot of people also take unnecessary risks in the stock market that could end up really hurting their net worth.  This is why I recommend a permanent portfolio for simplicity and relative safety.

The lesson here is: Invest in yourself.  This isn’t what most people want to hear, but they should take the advice.  For your actual savings, I recommend keeping a majority of it safe and sound, or at least as safe and sound as is possible in this uncertain world.