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What should investors do if paper money loses value

Wednesday, September 15, 2021



The saying that ‘money makes the world go round’ is one that has been widely used over many years, behind this saying is the fact that paper money, or fiat currency, only has value because governments say that it does.

Over the past couple of years especially, there has been increased inflation and a lot of unpredictability when it comes to the economy. Due to this, we have seen that more and more investors are expecting a massive devaluation in global currencies.

One of them is Mark Mobius, a well-regarded investor and founding partner of Mobius Capital Partners.

What is Mark saying?
"10% [of your investment portfolio] should be put into physical gold … Currency devaluation globally is going to be quite significant next year given the incredible amount of money supply that has been printed," Mobius said.

Some may ask, ‘Why 10% of gold, exactly?’
Of course, the amount of gold held by investors in their portfolio depends on the individual’s income, risk appetite and investment goals.

However, as a general ‘rule of thumb’, it is recommended to keep up to 10% of the value of your investment portfolio in gold. This is roughly enough to protect yourself against possible economic downturns, including currency devaluation.

Why warn us about currency devaluation?
Because, over the past 18 months economies have taken a beating, as a result of the COVID-19 pandemic. This led to the central banks having to print more money at an alarmingly rapid rate to save these economies.

Take for example, the ECB which aincreased its money printing by nearly half in March 2021, while of all U.S. dollars currently in circulation, almost a fifth were created just last year.

What’s the problem with money printing?
If you view it as a useful economic tool used by the central banks to save the pandemic-hit?economy,?there is no problem with money printing. But, if you view it from the perspective of a consumer, an unstated result of such excessive money printing is that it can significantly weaken the purchasing power of paper currencies.

What could this lead to?
If too much money is printed, it runs the risk of becoming worthless. Essentially everything costs more, while the money is worth less.

So, is there a way to protect yourself?
According to Mobius, the best way to do so is to keep 10% in gold, with specific emphasis on purchasing physical gold, as he went on to say "To counter the currency devaluation, investors should buy physical gold rather than the more popular route among investors of buying a gold ETF."

Physical gold is a lot more reliable and seems to be the best way to build up an investor’s portfolio as it cannot be printed or created out of thin air and bears no counterparty risk, unlike paper money and paper gold (such as ETFs).

Investors would be wise to begin turning their attention to alternative ways to store and protect their wealth, as prices rise, and paper money continues to lose its value.