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What Are Physical Assets? All You Need To Know

What Are Physical Assets? All You Need To Know

Your future is calling, and so is your opportunity to invest. You may be a seasoned investor or fresh off the market; either way, investing your money today is the best way to take advantage of compound interest and multiply it for tomorrow (but you already knew that).

Now to sit down and open the book of investments. You’ll need to decide on which type, or types, best suit your financial goals. As you look through the book, you come across various options, such as those available in the financial market and those known as physical assets.

The Meat and Potatoes of Physical Assets

Referring to an asset as physical translates to tangible, or something that is able to be held, seen, or touched. They carry a few other names, such as hard, real, productive, and tangible assets.

Physical assets are a long-term investment that may even require a little extra space around your home to store, depending on what you purchase. 

Examples of physical assets include:

  • Cash

  • Real Estate

  • Precious Metals, such as gold and silver

  • Other commodities including oil and gas

  • Items deemed as collectibles

Cash Is a Physical Asset

Cash is used daily and is considered a current physical asset. It’s in paper form, so it can be wielded when making a purchase at a grocery store, or when deposited at a financial institution into a savings account.

Real Estate Is a Physical Asset

Owning a piece of land, a building, or both add physical assets to your portfolio. It could be the residential property you live in or the second piece of property that you rent out for a secondary source of income. 

Going into real estate, especially if it is your personal property, you may not initially buy in to make a profit. Who really wants to move when it can be costly and such a hassle? But the truth is, real estate has the potential to appreciate over time. Many factors affect the appreciation of real estate such as location, and supply or demand. 

Real estate acts as a passive investment and doesn’t involve too much effort (unless you love the idea of purchasing homes that need a good face-lift). 

Of course, you need to keep good relations with your tenants and upkeep the property. Outside of that though, it’s extra income at the end of the day for you to utilize and invest towards your goals.

Precious Metals Are Tangible Assets

Gold, silver, copper, platinum - these are all examples of precious metals that are obtainable as physical assets. Of course, there are also options available where you never have to keep it physically within your home. But what’s the fun in that?

Precious metals do not behave the same as the stock market but have a strong, intrinsic value. They are heavily sought after, and since they come directly from mother nature herself are labeled as rare. People want precious metals to fashion jewelry, build electronics, hold as an investment, and more. 

Let’s stop and talk about gold for a moment. Gold carries different forms, from that of a small coin to a large bullion or gold bar. Regardless of its size, it is a physical asset to consider investing in for long-term reasons. 

How long? That’s entirely up to you, but you’ll have to watch the market. As it grows, it’ll deliver positive returns. But if the market falls, it doesn’t fall with it. Remember, gold can hold its value.

Other Commodities Considered Physical Assets

What else do you think of besides precious metals when you think of commodities? Commodities are raw materials of value, including goods such as oil, natural gas, foods, and more.

Commodities tend to get overlooked and are purchased through the stock market and ETF options. Keep them in the back of your mind, though; as you build an investment portfolio, they can help keep it in balance.

Collectibles

This is a tough one. What do you currently own that you would consider a collectible? Or actually, let’s ask it a different way. What exactly is a collectible? 

Any object can be termed this if it is something that is in high demand but low supply. Here are examples of what can be labeled as a collective and make you money:

  • Vehicles - Classic cars fall into this category if they are well-maintained.

  • Paintings - works of art catch the eye of the beholder. Well-known artists reap the best resale value. 

  • Trading cards - sports cards, products, etc., are considered collectibles to extreme sports fans.

The list can go on and on to include various other items like video games, coins, and more. 

Are There Risks Associated with Physical Assets?

Yes, even physical assets carry a level of risk. The value of physical assets can both appreciate (the direction you want it to go), but it can also depreciate or even grow legs and disappear. Here are a few risks to familiarize yourself with.

Taking Inventory of Your Tangible Assets

Depending on the type of physical asset, you can mitigate the risk of theft by taking inventory. Make this a routine task so that you know what you have at all times. Keep a log and file separately from that of the asset itself.

How Long Will Your Physical Assets Last?

If an asset is tangible, it means it comes with a lifespan. Each will vary. For example, if you hold onto real estate, the building itself is classified with a useful life of 30 years or greater, but how about all of the other components such as the roof, the central air or heating system, and the appliances included within? These can become costly to replace.

Taking care of your physical assets is the key. Even assets such as precious metals should be stored in a controlled environment to avoid tarnishment or even fingerprints!

Calculating Net Worth of Your Physical Assets

The value of your physical asset may differ from a similar one owned by someone else. Why? Well, let us ask you this. How much did you pay for it? 

When purchasing physical assets, think smart. For example, if you are purchasing real estate, think about what you plan to do with it. Anything that you add in repairs, upgrades, etc., is added to the purchase price, becoming the beginning value to you. 

Do you think the future price tag will be greater when you are ready to sell to make a profit? Measure the risk ahead of time to sense which side of the scale you may fall on before you jump into the investment.

Physical Asset or the Financial Market - Which Should You Choose?

You may want to select from both arenas for a healthy, diversified portfolio. It’s good to know the difference as each can complement the other, especially during times of rapid inflation.

The Benefits of Physical Assets

Global growth and rising interest rates can call attention towards physical assets. While the economy continues to feel the effects of inflation, they are your best friend. Why? Because they act as a hedge against inflation. Gold is a perfect example. 

Gold is a popular, attractive precious metal. During times of uncertainty, its value holds strong. Refer back to 2020 when the global pandemic struck. The stock market suffered while the price of gold increased. According to Statista.com, in 2019, one troy ounce of gold was valued at $1,392.60 compared to 2020, where it lifted to $1,769.64!

Physical assets have a tendency to increase in value over time, but it’s important to note that this is not always the case. There may be periods where the value does decrease. Take a look at the housing market as an example here. Hills and valleys exist wherever you go, so consider your investments carefully before going all in.

The Benefits of the Financial Market

The financial market thrives when interest rates are low. What exactly are we talking about when referring to the financial market? Stocks. 

Sure, they are represented tangibly on a piece of paper, but you never see them as physical assets.

 Stocks trade as often as daily and vary in level of risk compared to physical assets that, as we’ve already mentioned, hold their value. 

But, stocks can bring bountiful benefits and have the ability to multiply your earnings faster than physical assets can when the market is hot, and your timing is spot on.

The Bottom Line

Physical assets create a feel-good attitude. Mainly, it’s because you know it exists and is in your possession, whereas other financial assets are tied up within the market with your ownership represented on a piece of paper. It’s also because they appreciate in value over the years.

Begin investing in your own physical asset, gold! Times have changed from where you need a large sum of money to exchange for enormous gold bars that weigh a ton and are hard to store. Gold is now more affordable and simpler to purchase through monthly subscription options offered at AcreGold. 

Visit AcreGold today to learn more about the different plans offered. You can quickly become an owner of gold and conveniently have it delivered straight to your door.


Sources:

Hard Assets - Overview, Examples, How To Invest, Importance

Gold price 1900-2020 | Statista

Gold as an investment: a source of return

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