Tangible assets refer to physical assets that have tangible value, such as real estate, precious metals, commodities, equipment, etc. They are different from intangible assets like patents, trademarks and goodwill. For investors, tangible assets have some unique advantages compared to other asset classes. In this article, we will explore 4 major types of tangible assets that are worth investing in.
Firstly, real estate is one of the most common tangible assets for investment. It generates stable cash flow through rent and enjoys capital appreciation over time. Commercial real estate like office buildings and warehouses can generate higher returns. Residential properties are easier to finance and manage. Location, amenities, transportation are key factors to consider when investing in real estate.
Secondly, precious metals especially gold and silver have intrinsic value and stood the test of time as stores of value. Investors often hold them as inflation hedge and portfolio diversifier. Bullion, coins, ETFs, mining stocks provide different ways to gain exposure. Allocating 5%-10% of portfolio into precious metals is generally recommended.
Thirdly, commodities like oil, natural gas, grains, livestock are another form of tangible assets. Their prices fluctuate with supply and demand. Commodity futures allow investors to bet on price movements. Proper risk management is critical when investing in this volatile asset class.
Lastly, collectibles like art, antiques, wine, coins also fall into the category of tangible assets. However, high expertise is required in selection and maintenance, which prevents most average investors from investing in them.
Real estate is a major tangible asset class suitable for most investors
Real estate investing provides steady cash flow through rental income and enjoys capital appreciation over long term. Investors can choose to invest directly by purchasing physical properties, or indirectly through REITs, real estate funds and stocks of property developers. Commercial real estates like office buildings, shopping malls, warehouses generate higher rental yields but require bigger upfront capital. Residential properties are easier to finance and manage for individuals. New properties with good amenities and transportation access in growing cities tend to generate the best returns. Real estate provides diversification to a portfolio concentrated in stocks and bonds. A 10%-20% allocation to real estate is appropriate for most investors.
Precious metals like gold and silver are ideal inflation hedge and portfolio diversifier
Gold and silver have intrinsic value and stood the test of thousands of years as reliable stores of value, especially in times of inflation and financial turmoil. Many investors hold 5%-10% of their portfolio in precious metals mainly for diversification and inflation hedging purposes. Bullion, coins, ETFs, mining stocks and mutual funds provide different ways to invest in precious metals. Gold ETFs like GLD and gold mining stocks can generate higher returns with higher risks. For pure exposure to gold prices, bullion and coins may be better options. Investors need to consider storage and insurance costs associated with physical gold investment.
Commodities can generate high returns but require expertise in futures trading
Commodities like oil, natural gas, agricultural products represent another form of tangible assets. Their prices fluctuate with supply and demand. Investors can gain exposure to commodities by investing in futures contracts. Proper risk management with stop losses is critical when trading the volatile futures market. Most average investors do not have the expertise to invest in commodity futures. Better options are commodity ETFs and mutual funds which provide diversified exposure without the need to trade futures contracts.
Collectibles require deep expertise and are less liquid
Collectibles like artwork, antiques, rare coins, fine wine represent stores of value and cultural significance. However, high expertise is needed in authentication, restoration, maintenance and insurance of the collectibles. The markets are opaque with high buyer risks. So collectibles are only suitable for very sophisticated investors with deep connections to the industries. For average investors, it’s better to stick to more liquid and better regulated asset classes like real estate and precious metals.
In summary, real estate and precious metals are two major tangible asset classes suitable for most investors. Commodities and collectibles require deeper expertise but can also generate high returns for sophisticated investors. In general, allocating 5%-20% of portfolio into tangible assets can provide portfolio diversification, inflation hedge and risk-adjusted returns.