As an investor, reviewing different investment options can help make informed decisions. Tangible investments refer to assets with physical form and intrinsic value, such as real estate, precious metals, art, antiques etc. While investing in tangibles has potential benefits like portfolio diversification, inflation hedging and stable cash flows, it also carries risks like illiquidity, high transaction costs and subjective valuations. This article reviews pros and cons of tangible investments to aid investment decisions.
Tangibles Offer Portfolio Diversification
Investing in tangibles can provide portfolio diversification as their values don’t move in lockstep with traditional securities. For instance, real estate and gold prices may rise when stock prices fall, reducing overall portfolio volatility. Tangibles hence offer non-correlated assets to balance portfolio risk.
Tangibles Can Hedge Against Inflation
As hard assets with inherent worth, tangibles like real estate and precious metals may better hold value against inflation compared to financial assets. Their potential to generate inflation-adjusted returns make tangibles an attractive option for investors concerned about rising prices eroding purchasing power.
Tangibles Generate Steady Cash Flows
Certain tangible assets like rental real estate and farmland can generate steady cash flows over long-term. Their income potential coupled with capital appreciation makes tangibles a viable passive income source for investors seeking stable long-term returns.
Tangibles Carry Liquidity Risk
Tangible investments are relatively illiquid compared to financial securities. Selling real estate or antiques can take considerable time and transaction costs are high. Lack of liquidity makes it tough for investors to exit quickly in case of emergencies.
Tangible Valuations Are Subjective
Valuing tangible assets involves subjective judgements, especially for collectibles like art and antiques where fair value is difficult to assess objectively. Relying on appraisals can be risky as valuation changes directly impact investment gains/losses.
While tangible investments offer inflation protection and diversification benefits, their illiquidity, high costs and subjective valuations are considerable risks. Conducting thorough due diligence and working with experienced advisors is key to mitigating risks and succeeding with tangibles.