Jun 5, 2021

13 min read

How to Store Value

Photo by NeONBRAND on Unsplash

WHAT IS VALUE?

There’s four things worth understanding about value.

  1. Value is the assignment of worth. At Duane Reade, a tube of chapstick can be yours in exchange for $3 US Dollars. There are real costs associated with the manufacturing of a tube of chapstick, but to you and I, $3.00 is the value we’re willing to invest in the finished product.
  2. Value and worth can be subjective, or objective, or both. People who wear contact lenses value saltwater higher than those who do not wear contact lenses. Yet, we all tend to agree on the value of an umbrella.
  3. Value varies and fluctuates. Normalized for space, NYC rent costs more than Blacksburg, VA rent (location). An umbrella is more valuable when it is raining than when it is sunny (circumstance).
  4. There is real-value and potential-value, but potential-value is better understood as time-value.

HOW DO I ACCUMULATE VALUE?

To increase our real value stores over time (AKA accumulate value), we can:

  1. steal,
  2. consistently convert potential value into real value through work, and/or
  3. convert/exchange low-value value stores for ever-increasing high-value value stores (through investing in the stock market).

The best strategy is often a combination of working and converting; but while anyone will teach you how to work, few will teach you how to convert low-value value stores to high-value value stores.

There are a few reasons for this.

  1. Someone has to be doing the work and those who have figured out how not to, probably prefer to continue not doing so,
  2. It generally requires already possessing a high amount of real value, of which not many people do (maybe? Could you or I buy a Basquiat painting?),
  3. The methods of exchange are generally unpredictable and to attempt this, you must risk losing value, of which few people are willing to do,
  4. Finally, akin to gambling, the methods of exchange can be complicated and are cumbersome or time-consuming to navigate.
  1. Homes and land generally have a positive time-value. They become more valuable over time. Your home is a value-store that appreciates in value, more so then a currency value-store such as US Dollars in Venmo. Homeowners have convert their Time into USD into Home.
  2. Banks will pay you to let them hold your currency value-stores in the form of an annual percentage yield (APY, aka interest rate). If a bank offers 1% APY on $5,000 USD in a savings account, after twelve months they’ll pay you $50.
  3. Stocks, bonds, and other quasi-loan mechanisms will pay you to reduce the risk associated with loaning money — that you may never see it again. It’s the same concept as interest but is called a dividend and can fluctuate wildly from month to month. Furthermore, as more people decide that loaning money to Microsoft through the stock market is a good idea, the value of your existing holdings will increase and you’re paid a dividend — win/win.

QUICK RECAP

All humans possess potential value in an intangible asset we call Time. Through work, we convert it to real-value in the form of currency. Once we possess currency, which is a value-store, we spend our lives converting it to other value-stores such as hamburgers, cars, stocks, and coffee machines. The value of these value-stores will appreciate or depreciate over time and it is in our best interest to maximize value placement into stores that appreciate.

HOW DO I ALLOCATE MY VALUE-STORES IN SUCH A WAY AS TO MAXIMIZE THE ODDS OF APPRECIATION?

Not so fast!! There’s two more concepts you need to be familiar with — liquidity and net-worth. Your net worth is how much value you possess across all of your assets; such as USD in a bank account, investments, and your car. Liquidity is how easily you can convert that value into a currency value store, such as USD, on a spectrum of easy to impossible.

  1. Open a high-interest Savings account. Interest rates vary over time and as of this writing, are at very low. However, they are the safest and should be an anchor in your allocation strategy. I use One Finance which offers 1% APY up to $5,000 and 3% on 10% of money wired in via direct deposit.
  2. Open a robo-investment account, such as a with Betterment. In 1993, you had to call a human at Charles Schwab to receive value-store recommendations and transact some shares of Dow Chemicals. Luckily, that’s all been automated with machines. Betterment is an investment account, but it doesn’t require you to know anything about investing. It will automatically diversify the money you put into the account across different kinds of equities(stock in a company) and bonds (essentially a savings account with a locked-in interest rate but with slightly higher risk). You can lose everything in your Betterment account if all the world’s governments and stock markets go bankrupt, but generally, the stock-market-value-store increases at a rate of 6% each year.
  3. Invest in yourself through education and certifications. This will increase the base-level of potential to real value conversion; which is especially great if you have high amount of potential value in time in work-hours (you’re younger!). If your annual salary is $50,000, but through a certification costing $500 and 100 hours of your time, your salary can grow 20% to $60,000.
  1. Open a retirement account. This is largely a ‘set it and forget it’ approach. It is not liquid as you cannot take money out without a severe penalty and should be considered money available after retirement.
  2. Open an e-Trade or self-directed investment account. This is different from a robo-advisor in that you have to decide what equities or bonds to purchase. If, through yourresearch, you anticipate a semiconductor shortage as a result of various factors relating to COVID-19 and Suez Canal mishaps, then you may wish to directly invest in raw materials that will be required to ramp up production of semiconductors — such as precious metals.
  3. Open a self-direct trading account like Robinhood. This is a high-touch, high-time-investment, high-risk, high-up-front-currency-value-store invesment. If you wish to purchase individual company stocks, such as Microsoft, or speculative value-stores such as Bitcoin, this is a good method that will not incur fees for trading ownership in these equities.
  4. Buy land or open an account with Fundrise. Fundrise invests in realty and new construction. It is low-yield, on the order of 2%, but also low-risk. Despite safety and higher yields than savings, it is not preferably due to liquidity. Money invested here is expected to stay here for 2 to 3 to 5 years. While you can take money out, there is a fee.
  5. Buy art or open an account with Masterworks. While I do not recommend this, it is the same as Fundrise above but uses the pool of money to buy art, such as Basquiat paintings. When that art is sold 10, 20, or however many years later, a distribution will be paid to you along the lines of your percentage of ownership in the painting, minus fees.
  6. Exchange your depreciating currency value-store for an appreciating currency value-store. Foreign Exchange, or forex, allows you to capitalize on changes in global power dynamics. Converting USD to another currency, such as a Euro may yield more return on your investment than keeping it as USD. You can monitor exchange rates on the internet and simply buy Euros and then hold them hoping the exchange rate improves. If Euros increase in value, then you can exchange them back for more USD.

WHAT ARE SOME OF THE FACTORS THAT REDUCE VALUE IN VALUE STORES (AKA THE RETURNS ON MY INVESTMENTS)?

When you place value in some value-stores such as equities (stocks! Stock is ownership in a company. Yes, that means you own .0000000000001 of Microsoft the company, when you buy 1 share) or savings accounts, an increase in value is considered income or capital gains (from the sale of assets like stocks). As you know, governments require you to forfeit a percentage of value through their tax programs such as income tax and sales-tax,whereby you pay a percentage of your salary and an item’s cost (7% of a $10,000 vehicle is $700 sales tax) respectively. The government defines ranges of income, called brackets, and assigns a percentage to anything that falls within that bracket. Theoretically, Jeff Bezos will pay a higher percentage (33%) then a professor at a university (18%) of their annual income to the government.

Ideally, after taxes and fees, your investments still grow at a rate exceeding the rate of inflation.

If, over time, hamburgers become more expensive by 50 cents each year, but your investments are bringing in 40 cents each year, then your value is not rising at a pace fast enough to keep up with commodity and asset costs in the economy (the US Economy is a huge flea market where, today, oil is sold over at tent #15 for $30 per barrel and you can get wheat at table #2 for $2 a bushel and handbags are around the corner but, tomorrow, the cost of oil is $30.10 and wheat is $2.05).

WHAT IS THE SOURCE OF VALUE? IS IT TIME? IS IT DESIRE?

The source of value is time but the accumulation of it is driven by necessity, then desire. We can accumulate value through many pathways (inheritance, investment, bank-robbery, lottery) but work will always be your safety net. Investing in yourself — your skills, knowledge, personality, looks — will probably be the highest yielding value-store over time.