Store of Value: Definition, How It Works, and Examples
Key takeaways
A store of value is an asset, commodity, or currency that can be saved and retrieved later without significant loss of purchasing power.
Durable, scarce, and widely accepted assets—like gold, certain currencies, and government bonds—are commonly used as stores of value.
* The effectiveness of a store of value depends on stability of demand, limited supply, and protection against depreciation (e.g., inflation or decay).
What is a store of value?
A store of value is something that preserves purchasing power over time. Unlike perishable goods that decay or highly volatile assets that can lose most of their worth quickly, a good store of value retains value or appreciates so it can be reliably saved, exchanged, or used for future transactions.
Characteristics of an effective store of value
Durability — it does not spoil or disintegrate (physical assets) or collapse in value (monetary assets).
Scarcity or limited supply — scarcity helps preserve value over time.
Divisibility and portability — easy to transfer and use in different denominations.
Wide acceptance — recognized and trusted by others for exchange or saving.
Stability of demand — ongoing demand reduces the risk of large value swings.
Potential to generate income — some stores (e.g., bonds) provide returns while preserving capital.
Examples
Currency — Stable national currencies function as stores of value, enabling saving, trade, and economic planning. Hyperinflation or loss of confidence undermines this role.
Precious metals — Gold and silver have long served as stores of value due to durability, scarcity, and broad acceptance. Gold often acts as a “safe haven” during economic crises.
Government bonds — Interest-bearing assets like U.S. Treasury bonds retain capital and provide income, making them reliable stores of value for many investors.
Real estate — Property tends to preserve value over long periods and can provide income (rent), though it is less liquid and subject to local market risks.
Collectibles and fine art — These can hold or increase value but are more illiquid and carry greater valuation uncertainty.
Commodities with limited supply — Some commodities retain value when demand remains and supply is constrained.
What weakens a store of value
Inflation or hyperinflation erodes the purchasing power of currency.
Physical decay or obsolescence makes an asset useless (e.g., perishable goods).
Sudden loss of demand or oversupply can collapse prices.
Lack of fungibility or extreme illiquidity limits usefulness as a store for broad economic activity.
Special considerations
Context matters: what serves as a good store of value in one country or culture may not in another. In advanced economies, major currencies are typically reliable stores of value except in extreme conditions.
Fiat vs. commodity-backed money: Modern economies primarily use fiat currency, which is not tied to a physical commodity. Confidence in government policies and institutions is therefore essential for fiat money to function as a store of value.
* Diversification: Many investors hold a mix of assets (cash, bonds, precious metals, real estate) to reduce risk that any single store of value will fail.
Conclusion
A store of value preserves purchasing power over time and underpins saving and trade. Evaluate durability, scarcity, demand, and income potential when assessing whether an asset will serve as a reliable store of value for your needs.