Tangible assets are seen as value diversifiers that can protect investors against future uncertainty or economic downturns. Are you considering an investment in tangible assets? Know what they are and how they fit into your general financial strategy.
What are Tangible Assets?
Assets You Can Touch
A tangible asset is any asset taking on a physical form and possessing monetary value. As the opposite of intangible assets, tangible assets have a definitive transactional and not merely theorized exchange value. Compared to intangible assets, tangible assets are something you can touch.
Two types of tangible assets.
If you browse the balance sheet, all tangible assets are listed in terms of their liquidity. Under the asset portion are two types of assets:
- Current assets (assets convertible to cash in less than one year); and
- Fixed assets (those which cannot be converted to cash in a year).
While tangible assets are of two types, it usually refers to fixed assets and not the latter. This type of asset provides a vital competitive advantage to organizations, particularly when they are used to generate revenue. They are also used as loan collaterals due to their long-term value. Nevertheless, the upkeep of these assets is substantial since they require considerable maintenance cost and insurance protection.
Another vital characteristic of tangible assets is its depreciation. Over time, these assets lose their value proportionate to their useful life.
Examples of Tangible Assets
Now that you know the features tangible assets have, what are examples worth your investment? Three examples of fixed tangible assets are land/real estate, precious metals, and collectibles.
Real estate is a favorite tangible asset to invest in among both buyers and sellers. Sure, the housing market has had its ebbs and flows, but demand for real property never goes away. Also, land, particularly agricultural land, is another tangible asset to consider for investment. It has diverse uses for individual farmers or agribusinesses who need long-term access to land.
Precious metals like gold, silver, or platinum, are another example of tangible assets. Among these three metals, gold and silver are preferred over platinum, which is quite volatile as an investment. Precious metals can be bought in coins or bars and are evaluated based on their weight.
Some collectibles are also considered to be good investments. Among the tangible assets, you could invest in are wine, rare coins, art, and stamps.
could invest in are wine, rare coins, art, and stamps.
Advantages of Investing in Tangible Assets
Investing in tangible assets is an excellent way of diversifying your portfolio and enhancing value. Also, these types of assets are little swayed by movement in stock or bond markets. In fact, they can even act as buffers to market risks that intangible assets can’t provide.
Works as an inflation hedge
Those that advocate for tangible assets hype its role as a shield from inflation. Historically, tangible investments such as gold bullions or bars have indeed fudged inflation. As the value of the dollar slid by over 97% for a century since the Federal Reserve was established, gold’s value leaped by over 300% for the same period.
One significant non-monetary benefit of investing in tangible assets is that it’s enjoyable. Collectors of fine arts and rare artifacts find joy not only in gathering pieces but also in reaping their investment potential later on. Your house may be valuable in the long-term, but it provides both comfort and pleasure for your family.
Disadvantages of Investing in Tangible Assets
While there are many benefits to tangible investments, there are also drawbacks.
One disadvantage of tangible assets is that it’s non-exclusive. The best way to generate revenue is to make yourself stand out from the competition. However, tangible assets are not differentiated. Other investors or companies can have the same type of tangible assets you keep in your portfolio.
Demanding and tedious
If you’re not one to be hands-on involved in caring for your assets, then tangible investments aren’t for you. Managing tangible assets, such as land and real estate, requires significant effort and time. It is also financially demanding. Maintaining your property investments requires payment of rates, upkeep, and insurance. Also, when you buy precious metals, you need to shell out money for storage.
Wrapping up, there are many advantages to investing in tangible assets such as diversification, protection from inflation, and personal satisfaction. However, it’s also susceptible to such problems as non-exclusivity and being tedious. That being said, you need to balance these pros and cons and see whether tangible investments make sense to your overall financial plan.