What is a Store of Value?
A store of value is something that can be traded and that will also hold value over time. Currencies are one example, since as long as a currency is stable, it can be readily traded in exchange for goods and services, and people can also hold it and rely upon the fact that it will retain its value. While the value may fluctuate over time in response to changing market conditions and other factors, only extreme conditions would cause a complete loss of value.
Currency is not the only thing which can be used as a store of value. Real estate, precious metals, gem stones, and similar assets can be used in this way. In all of these cases, people can exchange these items and hold them for varying periods of time. The value may even rise in storage, and sometimes, one can be held strategically with the goal of it's value going up, as do some people who hold deposits of gold.
The concept is an important aspect of many economies. It allows people to engage in a variety of activities because they can rely upon the exchange of items which will be useful not just immediately, but also into the future. For example, people work in exchange for money, which acts as a store of value, as opposed to things like food, which must be used immediately or lose its value.
Long term economic activities rely upon the exchange of items that have both immediate and long term value. This allows economies to expand and develop over time, as well as to advance. Storing and retrieving items of value lies at the base of many complex activities, such as trading on the stock market, in which people exchange money and stocks in the confidence that both can be retained and later retrieved for sale or transfer.
There is a risk of devaluation with any object being used as a store of value. For example, if someone stores currency in a bank and inflation sets in, the stored currency will lose value. For those who can ride out the inflation, the value may be restored over time as the economy stabilizes. Those who cannot may wind up being the losers. Likewise, things like real estate can decline in value in response to a changing market.
@Crispety - I don’t understand gold investments either but I prefer to collect art. I realize that the value of the art can fluctuate, but I buy it because I love to look at it. The value of it is secondary.
I think that it is fun to discover new artists and buy their work. I don’t know if I will ever find the next Picasso, but I am having fun trying. I know that if I am ever in a pinch, I would be able to sell my art on the market through an art dealer and make some money from it, so to me it is a good investment.
I know that a lot of people are looking at gold investing as a way to hedge against inflation. My brother in law believes that you should invest in gold because the prices are really skyrocketing and he is unsure about when the economy will recover. I won't be buying any gold investments because I am not sure about this and don’t usually invest in things that I am not certain about.
So I won’t be buying any gold investments. I personally think that real estate is still a great investment because prices are so low right now and the interest rates are low too. You do have to buy and hold real estate for a while in order for it to be profitable because the value in real estate is not only the gains that you make on the market value of the property, but the income that you can earn from renting the property out as well. This is why I love real estate.
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