What makes a good store of value?
- Saving means sending today's work into the future. A store of value is what carries it there.
- The good ones share a few traits: they're hard to make more of, they last, and they're easy to check and sell.
- Nothing is perfect. Every option trades one weakness for another, and knowing which one is the whole game.
When you save, you're trying to send today's work into the future. The question is what to send it in. For most of history, people chose things that everyone needed and that didn't go bad. Salt was one: your body needs it, it keeps for years, and getting it takes real work. In parts of Ethiopia, bars of salt were used as money well into the 20th century. Even our word salary probably comes from it.
The idea never really went away. When US federal prisons banned smoking in 2004, cigarettes stopped working as currency, and inmates switched to cans of mackerel. Nobody particularly wants to eat it. But everyone accepts it, because they know the next person will too.
Then came something stranger. Gold feeds no one and builds nothing. But it's hard to find and takes enormous work to dig out, so nobody can make more of it cheaply. It never rusts, and a small piece holds a lot of value. For thousands of years, that was enough.
Anything you can keep today and trade later for about the same amount of goods. A good one keeps your work's worth intact over time. A bad one slowly leaks it.
What do salt, mackerel, and gold have in common?
- It's hard to make more of. If anyone can make it cheaply, its value melts.
- It lasts. Fresh fish rots, canned fish doesn't.
- It's easy to check. You can taste salt and test gold. Fakes are hard to pass off.
- It's easy to split and carry. A can, a bar, a coin.
- Others will take it. Its value depends on the next person accepting it.
No trait is enough on its own. Rare things nobody wants are worthless. But when people do want something, the first trait decides whether its value lasts.
Let's make it concrete
In 1970, Rosa's grandmother puts $35 in a drawer. Her neighbor buys one ounce of gold, which cost about $35 back then. Today, the $35 is still $35, but it buys about what $4 bought in 1970. The ounce of gold is worth well over $3,000. Same starting amount, same drawer. One of them stored value. The other just stored paper.
How today's options score
Cash. Easy to check, split, and spend, and everyone takes it. Its weak spot is the first trait: more of it can always be made, so it slowly loses value, about 2% a year by design.
A savings account. Same as cash, plus a little interest, which often doesn't keep up with prices. And legally, it's a loan to your bank.
A house. It lasts, and land can't be printed. But you can't sell a bedroom, selling takes months and costs fees, and its value depends on where it stands and on interest rates.
Stocks. Shares in real businesses that can grow over time. But they can drop hard, sometimes for years, and a single company can disappear completely. Spreading across many helps.
Gold. Thousands of years of track record, and nobody can print it. But it pays nothing, storing it safely costs money, and it has gone through long periods of falling or going nowhere.
Bitcoin. Its supply is fixed by its rules, and it's easy to check, split, and send. But it's young, and it has crashed by 70% or more several times. It also puts the responsibility on your shoulders. Keeping it safe means learning something new. It isn't rocket science, and anyone can learn it, but it's real homework. You can hand that job to a company, but then you're back to trusting someone else with your money. Gold works the same way: keep a coin in your pocket carelessly, and it's gone too.
Art and luxury items. This one sounds crazy, but it's what very rich people do. A famous painting is as scarce as it gets: there's only one. Some of the most valuable ones never hang on a wall at all. They sit in high-security warehouses like the Geneva Freeport, just storing value. But look at the weak spots: fakes are a real problem, you can't sell a tenth of a painting, selling can take months and cost a big cut in auction fees, and its value depends on taste, which changes. Scarce, yes. Easy, no. The same goes for luxury watches, a very Swiss version of this. A sought-after Rolex or Patek Philippe can hold its value, and it fits on your wrist instead of in a warehouse. But it's a fashion market too: second-hand prices for some models shot up during the pandemic, then fell sharply from 2022.
Isn't this a bit unfair?
Partly, yes. The money most of us are paid in is the one with the weakest first trait. And the people with the most money have the most options to protect it: property, art in a vault, advisors who handle the homework. Most people are left with what's easy: cash and a savings account, which are the ones that leak.
But no one decides for you where your savings live. You don't need a painting in Geneva. Once you know the five traits, you can look at any option, and any sales pitch, and ask: hard to make more of? Lasts? Easy to check, split, and sell? Will others take it?
There's no perfect one
There never was. Salt dissolves, mackerel is gross, gold is heavy, and every modern option has its own weak spot. Spreading across several is how smart professional investors deal with that. The goal isn't to find the perfect one. It's to stop saving in the one that leaks by design, without noticing.