How to Invest in Tangible Assets

Tangible assets are physical resources owned by a business or individual that hold monetary value and can be touched or felt. These assets include items such as real estate, equipment, inventory, and vehicles. Tangible assets are sometimes also referred to as “alternative assets” or “physical assets.”

Investing in tangible assets is a popular strategy for diversifying one's investment portfolio and hedging against market volatility. They offer tangible benefits that cannot be easily replicated by other investment options, such as stocks or bonds. Continue reading to learn how to invest in tangible assets.

What is a Tangible Asset?

The word “tangible” is defined as “perceptible by touch;” when something is tangible, you can physically touch it or hold it in your hands. Tangible investments exist outside of a financial or asset account and they have a physical form. If you’ve ever bought a house, won a valuable piece of artwork at an auction, or bought yourself a nice piece of jewelry, you’ve already invested in a tangible asset.

Types of Tangible Assets

You can invest in multiple types of tangible assets. You might also want to invest in multiple classes of tangible assets to add another layer of diversification.

Inventory

If you’re a business owner, you may have multiple types of inventory with intrinsic value. Raw materials, finished products and goods in process are types of tangible assets you invest in through a business.

Furnishing and Fixtures

You’ve probably put a number of investments into your business beyond inventory and the raw materials used to create it. Things like office furniture and fixtures, computers and other tools that you use to conduct business are also considered tangible assets, as they have an intrinsic value.

Land

Land is a valuable tangible asset. Unlike inventory and furnishings, land is less likely to decrease in value over time.

Buildings

Buildings built on land are also tangible assets. Buildings can generate returns on initial investments by acting purely as investment properties, increasing in value over time, or they can be used to generate rental income.

Precious Metals

Precious metals like silver, gold and platinum are tangible assets, as you can hold them and they maintain an intrinsic value. Gold is one of the most well-known tangible assets and has been used for decades as a non-traditional investment. You can find multiple ways to invest in physical gold, including bullion gold coins, bars and fine jewelry. If you’d prefer to invest in gold without being responsible for storing valuable items, you can also invest in gold exchange-traded funds (ETFs), which trade similarly to individual stocks.

How to Value Tangible Assets

After you’ve made the jump to investing in tangible assets, you might be wondering how you can track the value of your investment and how it is changing over time. While you can’t log into a brokerage account and see the value of physical assets conveniently calculated for you in the same way as stocks and ETFs, several methods are used to value tangible investments.

Specific Appraisal

For many types of tangible assets, you’ll need to seek a specific appraisal to determine their exact value. This factor is especially true when it comes to items like collectibles and antiques that must also have their authenticity verified before an exact appraisal can be conducted.

An appraisal is a professional estimation of what something is worth. If you’ve ever bought a home in the past, you are already familiar with the appraisal process. During an appraisal, an expert within the industry of your tangible asset will take a look at its condition and assign a value to the item based on their experience. Depending on the type of assets you own, you may need to seek a new appraisal every year to keep up with the current value of your investments.

Liquidation Price

You can also get an idea of the value of your tangible assets by researching the liquidation price. Assets like raw materials, furnishings and inventory usually depreciate over time, which means that the liquidation price may change regularly and drastically depending on current market circumstances.

Replacement Cost

For some types of items, you can consider the value in terms of a replacement cost. For example, if you use a special type of equipment in your office, you can get an idea of how much it is worth by researching how much it would cost you to replace each item with the same model. If the model of equipment you need is no longer in current production, you might be forced to use a more recent make as a model for your replacement cost calculation.

Benefits of Investing in Tangible Assets

Tangible assets can provide you with a few important benefits in the context of a long-term investment strategy.

• Hedge Against Inflation: Some types of tangible assets are known to act as a hedge against inflation, retaining their value when the value of the dollar drops. Examples of tangible assets that have traditionally been used to hedge against inflation include gold and real estate investments.
• Less Correlated with the Stock Market: In periods of economic downturn, tangible assets tend to perform well. This factor can make tangible investments more appealing when stocks, ETFs and other types of funds are doing poorly.
• Less Volatile: Some investors choose certain types of tangible assets because they are less likely to drastically shift in value. For example, the share price of a stock might fluctuate on a daily or even minute-to-minute basis. However, the price of real estate tends to remain steady, showing lower percentage changes in value on a month-to-month measurement. This feature can make some types of tangible assets appealing to older investors or those nearing retirement.

Drawbacks of Investing in Tangible Assets

Here are a few drawbacks to consider when investing in tangible assets.

• Lack of Liquidity: Unlike stocks or bonds that can be easily bought or sold on the market, tangible assets can be more challenging to convert into cash quickly. This can pose a problem if you need to access your investment funds urgently or if there is a sudden decline in the value of the asset.
• Maintenance Costs: Owning a rental property requires ongoing repairs, maintenance, and management, which can eat into your returns. Similarly, precious metals may require storage fees or insurance costs. These additional expenses can reduce the overall profitability of your investment.
• Market Fluctuations: Tangible assets are subject to market fluctuations and changes in demand, which can impact their value. Unlike financial assets that are more easily diversified and spread across various sectors, tangible assets are often more concentrated and susceptible to specific market trends. This lack of diversification can increase the risk of investing in tangible assets and potentially lead to greater losses.

Compare Tangible Asset Investment Platforms

Once you decide that you want to add tangible assets to your investment portfolio, you’ll need to choose how you want to invest. Investing in alternative assets doesn’t necessarily have to mean heading to your local jewelry store or real estate office. The following platforms make it easy to invest in tangible assets from the comfort of your home.

Should You Invest in Tangible Assets?

While investing in tangible assets can offer unique advantages and diversification benefits to your investment portfolio, it is important to carefully evaluate the associated risks and potential drawbacks before making any investment decisions. Balancing your investment strategy with a mix of tangible and intangible assets can help you build a well-rounded and resilient portfolio.

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