Which collectibles are the most lucrative

Investing in Real Assets: Is It Worth It?

Lana Iliev, April 20, 2021

Especially in times lower interest ratesAs is currently the case due to the low interest rate policy of the ECB, the interest on savings accounts and bonds do not manage to offset the loss of purchasing power of money and to avert monetary devaluation. Investments in Material assets should help here and before the inflation as well as the consequences of government bankruptcies or currency crises.

Read here why not every investment in tangible assets offers you this kind of protection against inflation and which disadvantages have to be considered.

What are tangible assets?

In the theory material assets stand for real values and are therefore synonymous with the concept of reproductive value. But most of the time the term “real value” refers to you figurative sense: A tangible asset often means goods that are (supposedly) independent of fluctuations in the value of money or that are Compensate for inflation in value.

The reason for this is the assumption that real assets have a factual substance in terms of their real value, their value regardless of market activity exists and thus remains unaffected by market developments. In practice, however, this inevitably does not always apply.

What real assets are there?

Basically, every asset that has a certain value qualifies as a real asset in the figurative sense. This is because it can be assumed that a buyer can always be found who is willing to raise an amount for the property that is independent of inflation.

It follows that there is a large and unmanageable amount of potential material assets. The classic and most famous tangible assets are without a doubt property and the precious metal gold.

Real estate real estate: houses as security

Real estate investments can potentially offset prevailing inflation. First of all, by rising property values the rate of inflation and thus the rise in the general price level are offset. You can also Rental income be linked to the consumer price index and thus to the average price level. This can compensate for inflation.

Why is real estate not always inflation-proof?

The described inflation protection only comes about as long as the real estate market is in equilibrium. This is not necessarily the case, because real estate is also subject to real estate Fluctuations in value and its asset value can go down. If a real estate bubble bursts, real estate can even suffer massive devaluation.

In the worst case, a property is of less value at the time of sale than it was at the time of purchase and losses are incurred. Since real estate investments also mostly long term are made, the value of the property at the time of sale is often particularly difficult to predict.

Also the low liquidity of real estate can make it difficult to sell and prevent a reasonable price from being obtained.

In addition, the Rental income fluctuates: Real estate must first be rented in order to generate rental income. Payment defaults in the form of outstanding rents due to vacancies or rental debts thus jeopardize the property's protection against inflation.

The currently prevailing one continues to lead Real estate boom in Germany, especially in metropolitan areas, at high real estate prices. Buying your own property therefore requires a special one high capital investmentwhich often leads to high levels of debt.

Real estate crowdinvesting also gives investors the opportunity medium term and at low capital investment invest in the real estate market. The terms for crowdinvesting systems brokered by BERGFÜRST are one to five years. In addition, the minimum investment volume is just € 10 and that with an annual return on the investment opportunities of 5.0% to 7.0%.

Real value precious metals: the classic gold

Precious metals such as gold, silver or platinum are also considered to be stable and crisis-proof tangible assets. Just gold is from historical importance, as it was often used as a transitional currency in times of crisis. Since gold is also only available to a limited extent, it is considered an investment object.

A Rise in inflation often goes with one rising gold demand hand in hand. In addition, the gold price and the share prices on the stock exchange usually develop in opposite directions. In addition, buying and selling physical gold is much easier than real estate, for example. These properties contribute to the fact that investments in the real asset gold are a popular way to hedge against crises and protect against inflation.

Only investments in physical gold in the form of bars or coins. Indirect gold investments In the form of gold-related securities (gold mining stocks, gold funds, gold ETFs or gold certificates) are dependent on the development of the stock market and, if applicable, the corporate performance and are therefore also referred to as "paper gold".

Why doesn't gold always protect against inflation?

However, there are also disadvantages when investing in gold as a tangible asset: The shiny precious metal is sometimes defeated certain fluctuations in value (volatility)as prices are often determined by speculators. The right time to invest is therefore crucial: Anyone who buys the gold when the gold price is high and sells it when the gold price is low will suffer losses.

It also generates a gold investment no current incomeas is the case with real estate and stocks in the form of rents and dividends. Physical gold is therefore not suitable for building up wealth.

It also needs physical gold safely stored become. Storing them in safes or bank lockers occurs costswhich reduce the return.

Ultimately, precious metals such as gold may also be subject to a certain degree Exchange rate riskif, for example, they are quoted in dollars.

Real value raw materials: Security through constant demand

Just like precious metals, agricultural, energy or industrial raw materials are also considered tangible assets. Unlike gold is one however, direct investment is not possible. In crude oil, for example, investors can only invest in stocks or certificates. However, these indirect investments are always dependent on share prices and therefore do not offer any real protection against inflation.

In addition, raw material prices always depend on the Economy as well as international and national political factors are dependent. Strong price fluctuations complicate the investment here and require specialist knowledge.

Real asset stocks: companies as real assets

Shares are also considered real assets, because they certify a share in a company and thus also in its production capital as well as for investors non-monetary assets such as machines, real estate or patents.

However, shares do not have the classic properties of tangible assets, such as those found in real estate or physical gold. Because stocks are riskier and have a special high volatility.

Why don't stocks offer complete protection against inflation?

Some stocks can be ascribed a certain protection against inflation - other stocks withstand inflation less well and are therefore unsuitable for real assets. So apply to companies with a high intrinsic value (asset rich companies), for example by owning real estate or large inventories of machines, as better protected in times of inflation. The general increase in price levels affects assets and ultimately causes stock prices to rise as well.

In Germany, the asset rich companies primarily include old economy companies such as ThyssenKrupp or Salzgitter, but also vehicle manufacturers such as Daimler, Volkswagen, BMW and MAN.

An increase in the price level also always goes with one Increase in production costs hand in hand. Is a company in direct, strong competition to other companies, it is difficult to raise product prices and thus pass the increased production costs on to the customer. This creates shortfalls in these companies, which in turn lead to falling share prices.

Companies with a strong market position on the other hand, such as Coca Cola or McDonalds, are better able to enforce price increases and thus compensate for the increased production costs. They are therefore more suitable for material assets.

Material value collector's items: Particularly rare material values

Special collector's items, whose value increases over the years, are also considered material assets. Old or contemporary works of art, jewelry, special cars or vintage cars, antiques or even whiskey can function as an inflation-protected investment object.

Such an investment is more likely without the appropriate specialist knowledge speculative. It should also be noted that collector's items or rare material assets cannot be turned back into money so easily, as the potential buyers are limited.

In which tangible assets is it worth investing?

Investing in real assets can protect investors from a loss of purchasing power. In this way, investments in the right tangible asset can protect assets at the right time. Which material asset is the right one, however, has to be decided individually and depends on multiple factors. In addition, the investment in a single material asset cannot adequately protect against monetary devaluation.

In order to benefit from the advantages of every material asset and at the same time to be protected against the risks of the investment, the Investment diversification at. Every portfolio can be hedged against inflation and times of crisis through well thought-out risk diversification. Real assets should always make up part of the portfolio.


Material value

Portfolio tip

property
Buying a property is particularly costly and makes it difficult to diversify the portfolio. Real estate funds or crowd investing, however, enable real estate to be invested in - and neither require a large amount of equity capital nor borrowing and debt.

gold
The real asset gold can be added to any portfolio as security. Nevertheless, experts recommend investing a maximum of ten percent of your assets in physical gold.

raw materials
You can only invest indirectly in raw materials such as crude oil. This real asset is therefore not really suitable to hedge a portfolio.

shares
ETFs are particularly suitable for diversified investments in stocks. These are passively managed funds that are not actively managed by a fund manager, but passively map a fixed index, for example the German share index (DAX).

Collectibles
Rare collector's items such as works of art or classic cars require specialist knowledge. This real asset is not easily suited to hedge a portfolio against inflation.

Image copytight: PunkbarbyO / Shutterstock.com

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