Table of Contents
Introduction
Investing in real assets such as tangible assets is the right thing to do for the future. These are not just any assets, but real assets are the physical assets that have some intrinsic value and act as a shield against inflation. You should know that real estate, commodities, precious metals, and infrastructure are not new to this area. In this article, we will discuss why it is beneficial to invest in real assets and how you can go about it.
Why You Should Consider Investing in Real Assets
Investing in real assets is quite different from investing in financial assets such as stocks and bonds. Here are some benefits to consider:
- Diversification: Real assets have generally shown a low correlation with conventional financial assets, which means you can include them in your investment portfolio to reduce risk or even improve returns.
- Inflation Hedge: These assets typically rise in value during periods of high inflation. For instance, property prices generally rise at the same rate as inflation, which makes it a natural protection against increasing costs.
- Tangible Value: Unlike financial assets, real assets are assets that have a physical form. Gold and silver have been a common form of money for centuries. This is because the tangible nature of the assets provides the investor with some level of comfort that comes with owning something solid.
- Income Generation: Most real assets, including rental properties or infrastructure projects, provide income in the form of rent or dividends. This offers a steady stream of income and, therefore, increases your potential returns.
Types of Real Assets
Real assets include a number of investment products. Here are some of the most common types:
1. Real Estate
Investing in real estate is a good way to diversify and produce income. Here’s how you can get into real estate investing:
- Residential properties: Leasing out residential units means stable rental income.
- Commercial properties: This category includes investment in office buildings or retail spaces that provide higher rental yields.
- Real estate investment trusts (REITs): These are companies that own and operate income producing real estate and provide a means by which individuals can invest in real estate.
2. Commodities
Commodities are unprocessed products which can be purchased and sold in the market. These can be used to hedge against inflation and increase the diversity of your portfolio. Some examples include:
- Gold and silver: These precious metals are traditionally seen as safe havens during the times of economic crisis.
- Oil and gas: Investing in oil and gas produces exposure to the energy sector and can generate money from rising prices.
- Agricultural products: These include wheat, soybeans and other products that can be sold in the market to diversify your investment portfolio.
3. Infrastructure
Investment in infrastructure assets like highways or renewable energy projects offers stable long term returns. The source of the income is from user fees or government contracts.
How to Invest in Real Assets
Now that we have discussed the advantages and types of real assets, here is how you can start investing:
1. Research and Due Diligence
There is a need to conduct detailed analysis before making any investment decision. This entails identifying the trends in the market, analyzing the past performance and comparing the risks and returns. If you are new to the area, you should not be afraid to seek the opinions of professionals in the industry.
2. Identify Your Investment Approach
Real assets can be bought through a number of ways;
- Direct ownership: This is the process of purchasing properties or commodities and then taking care of them directly.
- Indirect ownership: Here, you invest in funds or other vehicles that pool together money from many investors to buy real assets.
- Publicly traded securities: This includes the acquisition of shares in companies that own and develop real assets such as energy companies and REITs.
3. Allocate Your Portfolio
How much of your investment portfolio should you put into real assets? It will depend on your risk appetite, investment objectives, and time horizon. A normal investment portfolio consists of a mixture of real and financial assets.
4. Tax Consequences
Real asset investment has tax implications, for example, property or capital gains tax. It is always advisable to seek the advice of a tax consultant to understand these consequences and then modify your investment plan.
5. Monitor and Rebalance
Stay aware of your real asset investments and make changes to your portfolio as needed. The market conditions and the asset performance will not remain the same and investing is a process that requires constant watching and updating.
Conclusion
Investing in real assets can provide long term growth, diversification and protection against inflation. It is therefore possible to improve the returns and minimize the risks in your portfolio by including real estate, commodities and infrastructure. It is important to remember that the due diligence should always be done, the strategy should be well thought out, the money should be distributed correctly, the taxes should be considered and the assets should be monitored. This is because, with proper planning and a long-term investment perspective, real assets can generate solid returns that can lead to the generation of wealth.
