(Last Updated On: October 18, 2023)
It is likely that you have heard stories about people burying gold on their property or hiding bonds in their homes to keep their assets safe. These are funny anecdotes, but they also illustrate how to store value. A secure financial plan requires a store of value.
As a store of value, money keeps 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. In order to determine which currency is best for this, it is important to define what a store of value is.
Qualities of a Store of Value
These are the most important qualities of a store of value: the ability to maintain or increase in value over time.
1. Enduring Nature
It is crucial that any assets, commodities, or currencies remain valuable for many years to come. For example, most household appliances depreciate quickly within five to eight years, which makes them an unfavorable option for storing value.
2. Stability and durability
When something expires or experiences price volatility, it is not a good store of value. Likewise, if it is prone to wear and tear, it won’t retain value.
3. Immutability
Your store of value must also be functionally retrievable or tradeable at any time. This also means that transactions cannot be reversed.
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 future. Stores of value are especially useful during times of economic distress – as they can replace your fiat currency in transactions – as well as in emergency situations.
Store of value example
In cultures all over the world, gold jewelry is given as gifts at significant life events or passed down in the family. This is seen in cultures where precious metals and stones are used as a store of value. It is easy to store gold in the home or bank, it does not wear, and it is often accepted in exchanges. People living in countries with volatile or weak currencies may find it particularly useful to have gold stores of value.
Until 1971, the U.S. dollar was on a gold standard, which means that gold has universal purchasing power.
Market sentiments towards gold (and most other precious metals and gems, like diamonds) are also extremely positive. Gold is so widely used as a store of value that it has become a historical standard.
The new digital store of value: Bitcoin
Bitcoin is becoming a modern store of value with the use of technology. The decentralized crypto operates on a blockchain, a system of thousands of servers.
The peer-to-peer network is completely transparent and efficient, but users can remain anonymous. Bitcoin can be used for almost any transaction, is stored safely in online servers, won’t degrade with time, and is limited in supply. While the value of Bitcoin may fluctuate, its useful properties make it likely to only grow in value and use over time.
Money is a store of value, isn’t it?
Fiat currency – or money – is commonly 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. The usefulness of money can be severely hindered by depreciation in many scenarios.
It is possible for money to lose purchasing power due to inflation, war, or economic recession. Additionally, even in a relatively stable economy, money is extremely likely to lose its value over time. Ten U.S. dollars in 1950 would have been worth $128 in 2023, for instance! It is also dependent on the state of global economic affairs how your money converts into other currencies.
It is possible to convert your gold into any currency because it is accepted throughout the world. However, you cannot use your U.S. dollars to buy things in Europe.
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.
| Good stores of value | Bad stores of value |
| Precious metals such as gold, platinum, and silver are great stores of value. They hold value due to their scarcity and have multiple industrial uses. Storing large quantities safely is expensive, but their value is likely to appreciate. |
Perishable items like food, event tickets, or makeup products all lose value after expiry. Other things like equipment, machinery and buildings can wear over time and become unusable. |
| Gemstones like diamonds, sapphires, emeralds and more are also good stores of value for similar reasons. As they’re also smaller, it’s easier to store them in larger quantities. |
Delicate items like antique ornaments, vintage clothes, or fine wines are easily breakable. You may lose all your value if your commodities are damaged during handling. |
| Some cryptocurrencies like Bitcoin possess the qualities of a good store of value. Bitcoin has a limited supply, is useful for immutable transactions, and you can transact it from anywhere in the world. It’s also safely stored on a decentralized blockchain – unless the entire system is destroyed, your crypto is safe. |
Fiat currencies slowly lose purchasing power due to inflation. They also have no commodities backing their value. If people lose confidence in a nation’s money, its value will immediately drop. |
| Real estate often appreciates or keeps value, other than in certain situations (like war). Real estate includes land and buildings and can offer uses outside of selling, like renting or construction. However, real estate lacks the liquidity that other commodities have. |
Certain digital assets like copyright, software, and patents can depreciate if they become obsolete. |
| Bonds are proven good long-term investments. They’re also useful in diversifying your financial portfolio. |
Risky assets like speculative market stocks subject to price volatility are not good stores of value. |
Conclusion
You can create and maintain a store of value if you use the right assets. To keep the economy prosperous, money is needed as a store of value. You can prepare yourself financially for any situation by investing in a personal store of value. It will protect your finances during times of crisis and facilitate your future trades.
If you want to create a long-lasting store of value without spending any money, use assets that will not depreciate over time. You can even invest in unique artworks or digital assets like Bitcoin.
What is more interesting – when you deal with such crypto currencies like Bitcoin – you don’t have to sell them if you need money immediately. You can get a USDT loan against you Bitcoin, Ethereum or any other currency.
Disclaimer: You should not interpret the content as investment advice, nor does it constitute an offer to sell or recommend any investment product. It is made available only for information and/or educational purposes. If you wish to rely on any information in this article, you should seek independent investment advice from a professional or independently research and verify it.
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- Source: https://coinrabbit.io/blog/what-is-a-store-of-value-the-complete-guide/
