What an Investor Should Do When Paper Money Loses Value

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While it may be true that money makes the world go round, it only has value because governments say so.

And in our time of growing inflation and economic uncertainty, more and more investors are putting the spotlight on a possible massive devaluation in global currencies.

One of them is Mark Mobius, the famed investor and founding partner of Mobius Capital Partners.

What is he 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.

The backstory

Why 10% of gold, exactly? Well, the amount of gold to be held in a portfolio largely depends on an investor’s income, risk appetite, and investment goals.

But, as a rule of thumb, it is generally recommended to keep up to 10% of gold in your investment portfolio to protect yourself against possible economic downturns, including currency devaluation.

Why is he warning us about currency devaluation? Because over the past 18 months, central banks have been printing money like never before to prop up their economies, hurt by the COVID-19 pandemic.

For example, the ECB increased 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? No problem if we look at it as an economic tool used by central banks to save the pandemic-hit economy.

But from a consumer point of view, an unstated result of such excessive money printing is that it can significantly weaken the purchasing power of paper currencies.

What is the bottom line?

Money risks becoming worthless if too much is printed: there is more money to spend, while the amount of goods and services remains the same. As a result, 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, and he adds, “To counter the currency devaluation, investors should buy physical gold rather than the more popular route among investors of buying a gold ETF.”

Unlike paper money and paper gold (such as ETFs) physical gold cannot be printed or created out of thin air and bears no counterparty risk, which gives it a natural and intrinsic value.

That is why, when prices start rising and paper money losing its value, investors begin to turn their attention to alternative ways to store and protect their wealth.