HARD ASSETS AND FUTURE VALUE

 

Future value is a tool generally used in financial planning in relation to compound interest.  There are all sorts of adages about the wisdom of compound interest as a tool for wealth building  In contrast, the famous knock on gold, for example, is that it does not bear interest.   In fact, many traditionalists point out that Hard Assets do not bear interest.

Or do they?

The adages about compound interest and its virtue were all formulated in another era - the era of Hard Money: where money itself was a Hard Asset.  Money was gold and silver - which had an intrinsic value defined over centuries.  So compounding interest on that Hard; Read stable: Asset was a no-brainer.  Anyone can see the benefit.

But now Money is an imaginary asset. It has no intrinsic value and can fluctuates wildly in short periods of time.  The more you print, the less it's worth.  And during periods when printing is necessarily out of control because the need to service debt is essentially infinite - money can lose value against Real Things at an alarming rate. 

So how much  value does your compound interest have when attached to a rapidly depreciating unit of currency?

If you can calculate the Rate at which a Currency is Depreciating - that, in fact, becomes the rate at which a Stable Hard Asset compounds.

What is a stable Hard Asset: Anything that exists in the Real World and has accrued value steadily over centruries.  Gold, Historical Gold coins and medallions, Old Master Art, Maps, Historical Artifacts and documents, Books, etc etc etc

These things have a market value that becomes established over centuries.  You can research prices and with a lilttle hard work determine value over time.  It is not an exact science - but the social sciences are never exact.   

But one thing you can determine is their Implied Compounding in a particular currency by taking the rate at which that currency is depreciating and applying as an interest rate to the value of the Hard Asset.

So in a fiat currency regime - in which we all live - Hard Assets do indeed build your wealth through compound interest.

And anyone who deals in Hard Assets has seen a rapid appreciation in those assets the last few years can certainly attribute this rise to a correlative depreciation of global currencies.