What Is a Store Of Value?
Let me explain what a store of value really is—it's an asset, commodity, or currency that holds onto its value without depreciating over time.
Key Takeaways
- A store of value is an asset that maintains its value, rather than depreciating.
- Gold and other precious metals are good stores of value because their shelf lives are essentially perpetual.
- A nation's currency must be a reasonable store of value for its economy to function smoothly.
Understanding a Store Of Value
You need to grasp that a store of value is basically an asset, commodity, or currency you can save, pull out later, and exchange without it losing value. In fact, over time, it should hold steady or even gain worth to fit this category.
Gold and other metals qualify as stores of value since they last forever essentially. For you as an investor, things like U.S. Treasury bonds work too—they keep their value and even generate income through interest.
On the flip side, something like milk is a terrible store of value; it spoils and becomes worthless quickly.
Store Of Value Examples
Let's look at currency first. You know a stable currency is vital for any healthy economy. The money in your country has to be a reliable store of value so people like you can work, trade, save, and spend without worry. If it's not, it kills the drive to save or earn, and trading grinds to a halt.
Now, consider precious metals. Throughout history, many economies have relied on gold, silver, and similar metals as currencies because they store value well, they're easy to carry, and you can break them into different amounts for exchange. The U.S. was on a gold standard until 1971, where dollars could be swapped for a set amount of gold.
That changed when President Richard Nixon stopped the convertibility to let the Federal Reserve control things like employment and inflation better. Since then, we've used fiat currency—it's legal tender declared by the government but not backed by any commodity.
Important Note
Keep in mind that any physical asset could act as a store of value if the conditions are right or if there's a basic level of demand for it.
Special Considerations
What counts as a store of value can differ a lot between countries and cultures. In most advanced economies, the local currency is a solid store of value, except in extreme cases.
Currencies like the U.S. dollar, Japanese yen, Swiss franc, and Singaporean dollar really boost their economies. They're tough against hyperinflation, though not completely safe.
In tough times, other options like gold, silver, real estate, and fine art have proven reliable. Gold's price often jumps during national crises or market shocks, making it the go-to safe haven.
Even though their values fluctuate, these stores can be trusted to keep some worth in nearly any situation, especially if supply is limited.
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