Every collector and investor should understand three key terms: inflation, real and nominal value.
Almost every day, there is a post on CC asking about returns on silver, gold and numismatic items over time.
Inflation - rise in the general price level of consumer goods and services over a period of time.
Q: How do we typically measure inflation?
A: Consumer Price Index (CPI) - Measures the price level of household purchases
Inflation Rate - annualized percentage change in CPI over time ________________________
Real Value - Value of an investment after removing the affects of inflation.
Nominal Value - Price of investment at time of purchase.
I've outlined the concepts of inflation, real and nominal values in the video below. Also, I apply these concepts to both the PMs and numismatic markets. Recorded in HD. Please view the video here:
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Hopefully, this will save a lot of now and into the future!
Any of that means nothing for coins. Which is why it is constantly noted that this hobby is not good for investing. Coins are and always will be valued at what they are selling for, what you can buy them for and never what any price GUIDES claim. A CPI is just a term and has no bearing on coin values, yeseterday, today, tomorrow.
I never claimed that CPI has a bearing on coin prices; rather it is used to compute inflation rates. It is impossible to understand the markets for PMs, numismatic coins or any commodity without understanding what inflation IS and how to adjust investments into real terms.
It has everything to do with evaluating the value of coins. Did you watch the video?
Definitions of inflation, real and nominal values will be found in the beginning chapters of any economics textbook. It is vital that these terms are understood. My undergraduate was in Economics.
And I agree with you just carl, investing in coins is generally not a good idea. I use real world examples to exemplify that point in the video.
I just finished watching the video Drsandman2, its interesting to see how inflation really turn upside once gold was allow to be own by consumers.
I agree that even though some coins has gone up in values, that it is better to leave your money in a saving account during those periods to earn just the interest.
Quote: I agree that even though some coins has gone up in values, that it is better to leave your money in a saving account during those periods to earn just the interest.
Generally Id agree with that savings accounts bring back so little money right now its not even funny.
The coin may not go up in value but if you enjoy it your only missing out on a few dollars. With the rates right now you could actually probably do better just buying and selling bullion at the right times. You dont have to make much to over perform a current savings account rate
Yeah, interest rates are very low and I mention that at the very end of my video. Finding investments that trump inflation have become much harder in the current global economic climate.
You all just have to try the obvious. Invest in buggy whip companies. With the continuing increases in gasoline, there is only the horse and buggy left.
Quote: You all just have to try the obvious. Invest in buggy whip companies. With the continuing increases in gasoline, there is only the horse and buggy left.
Sorry just carl, I usually agree with 99% of what you post or at least see your side of the issue if you dis-agree with what I post or think but in this case you are just dead wrong. There is only the Bicycle left, don't want to have to shovel manure out of a horse/cow pen again in my lifetime. That was a crappy situation to say the least. :)
I collect coins, not PM's, so it is just a bit easier for me. When a new coin is added to my collection it is graded (by me) then put into a 2x2. It is then fully identified and purchase information (with date and month), noted on the 2x2.
Bit harder with the storage practices used for PM's, but it will be necessary to keep all of your purchase records. Store those in a folder.
Slabbed coins are not all that popular in Australia, but the purchase info can still be noted on the slab on a tiny piece of paper and stuck to the slab, if required.
If you wish to know how your little investment has performed against inflation, a calculator with exponential function does the trick, using the interest rate formula. It is just that you plug the inflation rate into the formula, instead of the investment interest rate.
Inflation rate histories are easy to find on the 'Net.
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Please view the video here:
now and into the future!
Posted 08/26/2012 5:06 pm
