What is a Store of Value?

A store of value is any asset, commodity, or currency that retains its worth over time. In summary, it is an asset that maintains its purchasing power, allowing individuals to preserve wealth into the future. Here’s a deeper understanding of this meaning:

Preservation of Purchasing Power:

The primary function of a store of value asset is to preserve the purchasing power of wealth. This means that over time, the value of the asset should not significantly erode due to inflation or other economic factors. For example, if you store your wealth in a store of value, you should be able to buy approximately the same amount of goods and services in the future as you can today.

Reliability and Stability:

A good store of value is typically reliable and stable, meaning its value doesn’t fluctuate wildly or unpredictably. Stability is important for individuals and institutions looking to preserve wealth over the long term.

Liquidity:

While being a store of value, an asset should also be relatively liquid, meaning it can be easily converted into cash or used to make purchases when needed. This liquidity ensures that individuals can access their stored wealth when necessary without significant loss of value.

Universal Acceptance:

Ideally, a store of value should be widely accepted and recognized as valuable by a large number of people. This universal acceptance increases confidence in the asset’s ability to preserve wealth and facilitates its use in transactions.

Protection against Economic Uncertainty:

In times of economic instability or uncertainty, a store of value can provide a safe haven for wealth. Investors often flock to stores of value during periods of inflation, currency devaluation, or geopolitical turmoil as a way to protect their assets from losses.

Common examples of stores of value include:

Precious Metals:

Gold, silver, Platinum, Palladium and other precious metals have historically served as stores of value due to their scarcity, difficulty in mining, durability, and intrinsic value.

$BTC, $ETH, $XRP and Crypto:

$BTC, $ETH, $XRP and a number of other crypto currencies have limited supply where demand outweighs supply, this leads to that crypto being deflationary meaning that asset going up in value over time ( a store of value ). A good example of this $BTC which has been the greatest store of value man has ever seen.

Stock Indexes:

The S&P 500 index ( diversified stock index in America ), the ASX200 index ( diversified stock index in Australia ) are two examples of diversified stock indexes that appreciate over time, long term performance of both of these is on average around 8% to 11% per year. Individual stocks are also stores of value, however people need to be aware stock picking has much more risk than investing into a low cost index fund ( which is diversified ).

Fiat Currencies:

Some stable fiat currencies, especially those issued by economically stable countries with low inflation rates and strong central banks, can function as a partial store of value. What do I mean by this is that over time even these forms of fiat will lose value compared to gold, silver or BTC or a index.

Real Estate:

Real estate properties, particularly in desirable locations, can serve as partial stores of value by preserving some of your wealth and providing rental income or capital appreciation over time.

Art and Collectibles ( and some NFTs ):

High-value art, antiques, some NFTs and collectibles can also function as stores of value, often appreciating in value over time due to their scarcity and cultural significance.

Overall, a store of value is an essential component of wealth preservation for anyone that is building a wealth portfolio, it provides individuals and institutions with a means to safeguard their assets against the erosive effects of currency inflation and economic instability.