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Savers who deliberately buy tangible assets for investment purposes value their tangible goods as a form of value diversification and as a hedge against economic uncertainty. Some might believe that tangible assets represent a higher chance of high returns than capital assets, such as stocks and bonds. You should consider investing in tangible assets if and when they make sense as part of your overall financial plan.
Tangible assets exist outside of an account balance, financial statement or exchange market. Put another way, tangible assets have a physical form and natural value. It’s likely that you have already invested in physical assets in some way – you may have bought a house or car, collected a piece of art, kept a family heirloom, or bought gold or silver jewelry.
Some investment analysts consider current assets, such as short-term securities and cash equivalents in deposit accounts, to be tangible assets.
Key Takeaways
- Investing in tangible assets like real estate, bullion, and collectibles can provide diversification, as these assets often have little correlation with stocks and bonds. This means they can help reduce overall market risk and act as a hedge during economic uncertainty.
- Tangible assets, especially bullion, offer protection against inflation. Over the years, physical assets such as gold have increased in value in inflation-adjusted terms, making them a reliable hedge as the purchasing power of currencies like the dollar declines.
- Tangible assets possess natural value due to their physical form and historical significance. For example, gold and art have been valuable for thousands of years, carrying intrinsic economic value that intangible assets might not possess.
- Investment in physical assets also offers personal enjoyment and utility. Owning a piece of art or a collectible can provide immediate personal satisfaction and diversify one’s investment portfolio, which is less common with intangible assets.
Enhance Portfolio Diversification with Tangible Assets
Most investment publications refer to tangibles as “alternative investments.” Standard types of tangible investments include real estate, gold bullion, art, antiques and other collectibles.
These asset classes tend to have little positive correlation with the stock and bond markets. Some are even counter-cyclical; an investment in tangible assets could reduce your exposure to overall market risk in a way that most intangible assets cannot.
Shield Your Investments from Inflation with Tangible Assets
Advocates of many tangible assets, particularly bullion coins and bars, tout inflation protection. History seems to validate the use of tangible goods as an inflation hedge. In the more than 100 years following the creation of the Federal Reserve, the purchasing power of the dollar declined by 95%. The inflation-adjusted value of an ounce of gold increased by more than 2,500% during that same time period.
Any bullion magazine highlights the fact that gold has been valuable for thousands of years and that it has never carried a zero value. This is also technically true. Gold has historically served as a source of jewelry and exchange since at least ancient Egypt and, unlike intangible assets, always carries economic value.
Discover the Dual Benefits: Financial Gain and Personal Enjoyment
Many tangible investments can create a psychological benefit. You might buy a collectible or piece of art because you value its display in your home as well as its investment potential. Similarly, your house itself might be a long-term tangible asset, but it serves many important functions for you and your family.
Investment in tangible assets offers the unique dynamic of immediate personal satisfaction, or utility, and the potential for increased future consumption through price appreciation. This is less likely with intangible assets.
