In the age of credit cards and cryptocurrencies, money can sometimes seem purely digital. However, physical assets offer more than just a store of wealth like cash.
They can help you grow your wealth and diversify your portfolio. This article will explain what physical assets are, the different examples available, and which ones make the best investments!
What Are Physical assets?
Physical assets are investments with a tangible form and a definite value. In other words, they’re tradable or saleable pieces of real property (investable assets). You might also hear them called tangible assets, hard assets, or fixed assets.
Unlike liquid assets, which are primarily cash and similar holdings, physical assets are a distinct category. After all, in our physical world, many assets have a tangible form.
For a company, this includes their inventory, tools and supplies, as well as real estate and buildings. For individuals, it could be things like property, homes, and collectibles. It’s important to note that some assets, like connections, reputation, and trademarks, are intangible.
Owning Physical Assets
Holding physical assets is a key part of building wealth. They are under your direct control, offer a calculable future economic benefit, and are the result of a past transaction (when you acquired them from the creator or previous owner).
Your Investment Portfolio
Your entire collection of investments is known as your portfolio. Diversification is key here, as each asset class carries its own unique set of risks and rewards. To avoid over-reliance on any single type of asset, it’s crucial to have a well-diversified portfolio.
Physical Assets Examples and Strategies
Physical asset ownership often involves acquiring something now, like a plot of land, with the intention of selling it later at a profit. Essentially, you’re seeking assets with the potential for appreciation in value.
Another strategy is to invest in land with the possibility of future development, which could generate additional income or create further value for you.
Traditional Investments
While we’ve been discussing physical assets, it’s important to remember more traditional investment options. These categories are well-established and can form a strong foundation for your portfolio.
Stocks and Shares
Owning shares in companies (stocks or shares) is a classic method of investing. This gives you a stake in a company’s performance and the potential for capital growth through rising share prices or dividend payouts.
Bonds
Bonds are essentially loans you make to a company or government. They offer a fixed interest rate over a set term, providing a steady income stream.
Property
Investing in property, like buy-to-let houses or commercial buildings, can generate rental income and potential capital appreciation over time. Your main residence’s equity also counts as an asset, although it’s not typically considered an investment as it’s your primary home.
Property ownership includes farmland, buy-to-let properties, or even just land that you hope will increase in value over time. Property can be a good way to diversify your portfolio and generate rental income.
Business Ownership
If you have an entrepreneurial spirit, consider this option. A business can generate and retain significant value, whether it’s a physical shop or an online store. Many entrepreneurs aim to sell their businesses eventually, for a profit, and this includes the value of both the tangible assets (like property or equipment) and intangible assets (like intellectual property or brand recognition).
Collectibles
This category encompasses a wide range of items, from rare antiques and classic cars to exquisite artwork. While these can hold significant value beyond sentimental attachment, be aware that they’re often subject to more subjective valuations compared to other asset classes. This can potentially work to your advantage, but it can also have a significant impact on resale value.
Commodities
These are tangible goods like limited raw materials (lumber, precious metals) or agricultural products (grain, oil). Their value is primarily driven by supply and demand at any given time. While it’s possible to dabble in this area, it’s advisable to thoroughly research each specific commodity before making any major investments.
Financial Assets
Cryptocurrency and Foreign Exchange (Forex): These are classed as financial assets, not physical assets. Some investors find them appealing due to their perceived independence from government or domestic markets.
However, as these are less established than traditional stocks or property, they may require more in-depth research before investing.
Choosing the Right Physical Assets
Just like any wealth-building strategy, the best investment is the one that aligns with your individual goals and risk tolerance. As with a well-diversified stock portfolio, you should aim to build a collection of physical assets that complement your overall investment strategy.
Investment Timeframe: Long Term or Short Term?
One of the most crucial considerations is your investment horizon – are you looking for long-term growth or shorter-term returns?
Long-term Investments
These may require patience. For instance, investing in a startup could mean waiting several years before they become profitable, delaying your ability to sell your shares or receive dividend payouts.
Short-term Investments
These can offer quicker returns. Commodities like gold can be bought and sold within a shorter time frame. You might aim to buy when the price is low and sell when it rises. However, this approach requires a greater understanding of market fluctuations.
In the end, you need to strike a balance between avoiding liabilities and building your assets. Instead of holding assets that lose value over time and become obligations, aim to acquire assets that appreciate in value.
Physical asset ownership is a fantastic concept! It’s time to make investments for your future. Keep the physical belongings that resonate with you and discard the rest.
Whatever you decide to do, make sure you’ve done your research to fully understand the potential for profit, as well as the costs and risks involved (such as property taxes or upkeep). You can succeed at this!
