Investing in tangible assets – what are the latest options?

03-Apr-2015

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It doesn’t matter if the stock markets are doing well or badly. If you have invested your funds into a tangible asset you are fairly well-protected against market fluctuations. Tangible assets are anything which is solid and can actually be held. Gold, fine wine, coins, art are excellent examples.

There is of course still a risk just as with any investment. The tangible asset price can rise or fall with the available supply and demand. Appreciation and depreciation also play their part.  Tangible assets should increase in value over the long term. Some of them also provide an income on the way. Purchasing farmland and either working it or renting it to a farmer is one such example.

Tangible assets can be split into two categories. There are those that can be converted into cash relatively quickly and within a year at most. These are known as current assets and include things like precious metals, cash, short term loans or currencies. The second option is those that are fixed and not easily converted back into capital. Real estate, machinery, wine, airplanes and oil or gas are all examples of this. These assets are known as long term assets and can be difficult to sell on.

Methods of investing in tangible assets

The usual method is to purchase something tangible and hold onto it. It is also possible to invest money in a fund which purchases tangible assets. There are even some who do this for a living and become part of either a partnership or a limited liability company. These types of business purchase useable tangible assets and either manage them themselves or lease them to those who can manage them. The leases generate an income for all involved and the tangible asset remains a part of the company.

Limited partnerships ensure the asset is only available to the partners and possibly a few select investors. The asset is purchased via shares. It is theoretically possible to own the majority of one asset even in a limited liability partnership. Investment in tangible assets is made easier by the fact that it is possible to accurately value the asset and to keep track of it. A simple valuation also helps when it comes to selling the asset and recouping the funds invested.

The safest tangible assets

Farmland is one of the best for this. It is visible, checkable and there is a constant demand for it. Other strong tangible assets are commercial real estate or power plants. Oil and gas refineries are also excellent for investors. The market is diverse and there are several options to assist investors in making the best choices. Many first time investors in this field prefer the relative safety of a partnership or investment company to assist in sharing the risk.

Those who put their capital into tangible assets such as gold do not actually need to look after the gold themselves. An ETF company will purchase the gold and keep it secure until the investor either wants it or sells it. Tangible assets are usually seen as the reserve of the very wealthy as there is a significant amount of capital required at the start. The recent difficult economic climate has encouraged more investors to try tangible assets and they are an excellent way of diversifying a portfolio and reducing risk.  Fine wine can also be regarded as a tangible asset. However, this type of investment is tricky.

Extra caution is required when investing in wine. Start with the basics (Bordeaux Mouton Rothschild, Burgundy, Napa Valley, etc.), and as you get to know the market, you can start taking risks. Investing in tangible assets is a very different way to make money compared to investing on the stock market.

It is just as important when considering investing in tangible assets to check the markets carefully and to ensure you do not fall foul of any regulations. Some assets (particularly art and fine wine) have requirements to be held for certain periods of time or to be kept in a certain way or place. There is little point in making money in the long term just to lose it in fines, so you are advised to take caution.

 

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