Fiat Money vs. Gold: Which One Should You Hold?
Did you know that the US dollar used to be tied to the value of gold (known as the “gold standard”)? In 1933, the government stopped using the gold standard and decided to set the value of money on its own to control the economy. That’s where the term “fiat money” comes from—“Fiat” is the Latin word for “formal authority.” In simpler words, fiat money refers to money issued by governments. So, what are the benefits of holding onto fiat money as opposed to gold? Here’s a look at the advantages of each.
The Benefits of Holding Fiat Money
1. It’s Liquid
If you’ve ever seen financial news headlines, you might’ve seen the word “liquidity” being used. In finance, liquidity refers to how quickly and/or easily an asset or security can be converted into cash. Fiat money is the most liquid asset there is because it’s already in cash form.
Holding fiat money is beneficial because you never know when you’ll require immediate access to cash to pay for something. For example, if you retire with a substantial amount of fiat money saved in your IRA and you want to buy a house, you can pay for it instantly before someone else buys it!
2. It’s Considered Legal Tender
The term “legal tender” refers to any form of payment that’s legally recognized. Fiat money is considered legal tender by virtually every country. In simpler words, every country accepts payments in the form of fiat money. Therefore, if you want to travel the world after retiring, you’re better off holding fiat money in your accounts that you can easily withdraw in the currency of the countries you visit!
The Benefits of Holding Gold
1. It’s Better at Withstanding Economic Shocks
Imagine holding fiat money in your IRA account only for the economy to tank. Your money could lose value instantly! In comparison, gold doesn’t lose as much value during a recession. Therefore, it’s better to hold gold as a means of protecting your wealth compared to fiat money.
2. It Offers More Confidentiality
The advent of blockchain technology has made it easier to mask how much fiat money you have and how you spend it. However, most people still hold fiat money in bank accounts—making it easy to trace.
In comparison, holding gold in private vault storage guarantees that only a handful of people know how much wealth you have. Therefore, holding gold is a much better way to keep your wealth confidential compared to fiat money!
So, Which One Should You Hold?
Ultimately, the decision to hold fiat money or gold depends on how much the benefits of each matter to you.
If you care more about liquidity and having easy access to funds after you retire, fiat money is the way to go. However, if you’re more interested in safeguarding your wealth from economic shocks and prying eyes, we recommend holding gold.
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