You have probably heard stories of the creative ways people have kept their assets safe, like burying gold on their property or hiding bonds in their homes. While these are funny anecdotes, they also describe how one can store value. Having a store of value is incredibly important for anyone who wants to create a secure financial plan.
A store of value is a primary function of money, keeping your assets from depreciating. It’s a great way to minimize loss and maintain value long-term. But not all forms of money are good stores of value. To understand which currency is best for this, it’s first to define what is a store of value.
Qualities of a Store of Value
A store of value is an asset, or collection of assets, that will maintain or increase in value perpetually. Here are the most important store of value qualities.
1. Long shelf life
These assets, commodities, or currencies shouldn’t depreciate years or even decades into the future. For example, most household appliances have a shelf life of only five to eight years, making them a terrible store of value.
2. Stability and durability
Anything that might expire or experience price volatility is a bad store of value. Likewise, anything that is quick to wear and tear will probably lose value. Since you’ll keep it for a long time, it has to stay in good condition.
3. Immutability
You should also have the ability to functionally retrieve or trade your store of value at any time. This also means that it should ensure transactions can’t reverse.
4. Scarcity
Most assets in stores of value are also finite in supply. Their rarity enhances their value and makes it more likely that demand will exist for them in the far future. Stores of value are especially useful during times of economic distress – as they can replace your fiat currency in transactions. They’re also good to use in emergencies,
Store of value example
Many people use gold, or other precious metals and stones, as a store of value. This is seen in cultures all over the world where gold jewelry is gifted at significant life events or passed down in the family. Gold is easily kept in the home or banks, doesn’t wear with proper storage, and is often accepted in exchanges. Having gold stores of value is especially useful to those who live in countries with volatile or weak currencies.
Gold has a universal purchasing power – meaning most financial bodies worldwide find value in it. The U.S. dollar was on a gold standard until 1971.
Suggested Reading: The Gold Standards (What the History Books Don’t Teach You)
This meant people would trade their dollars in for a measure of gold. Market sentiments towards gold (and most other precious metals or gems, like diamonds) are also overwhelmingly positive. It’s so commonly used as a store of value that it’s considered a historical standard.
Bitcoin: the new digital store of value
With technology, a new standard is being set with cryptocurrency. Bitcoin is often referred to as ‘digital gold’ by investors and is becoming a modern store of value. The decentralized crypto operates on a blockchain, made up of thousands of servers called nodes.
The peer-to-peer network is completely transparent and efficient, but users can stay anonymous. Bitcoin works for almost any transaction, is safely stored in online servers, won’t degrade with time, and have a limited supply. While the value of Bitcoin may fluctuate, its useful properties make it likely to only grow in value and use over time.
Is money a store of value?
Money- or fiat currency – is typically considered a store of value since its long-term value is crucial to a stable economy. If a nation’s currency loses value quickly, it’s a sign that they are suffering an economic crisis. Still, this doesn’t make money a good store of value. There are many scenarios where money can depreciate, severely hindering its usefulness.
Inflation, war, or economic recession can cause money to lose purchasing power. Plus, money is very likely to lose value over time even when the economy is relatively stable. For example, ten U.S. dollars in 1950 now has the purchasing power of $128 in 2023! How your money converts into other currencies is also dependent on the state of global economic affairs.
Suggested reading: Hyperinflation on a global scale: is crypto the answer?
For example, you can probably convert your gold into any currency – it’s accepted in countries all over the world. However, you can’t use your U.S. dollars to buy things in Europe. Once you convert your money, that currency could be worth even less.
Good vs. bad stores of value
If money isn’t a good store of value, what assets can you use instead? Here’s a simple chart explaining why certain stores of value are better than others.
Bottom Line
Creating and maintaining a store of value is a great idea if you use the right assets. Money is needed to function as a store of value to keep the economy prosperous. A store of value can protect your finances in times of crisis, and facilitate your future trades. By investing in a personal store of value, you can prepare your finances for any situation.
To create a long-lasting store of value that won’t cost you money, make sure you use assets that don’t depreciate over time. You can even get creative with your store of value by investing in unique artworks, or digital assets like Bitcoin.
Disclaimer The content should not be construed as investment advice and does not constitute any offer or solicitation to offer or recommendation of any investment product. It is made available to you for information and/or education purposes only.
You should take independent investment advice from a professional in connection with, or independently research and verify any information that you find in the article and wish to rely upon.
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