Real Assets

I once heard someone define real assets as things that when you drop them on your foot they hurt.  These are things that represent tangible stuff, unlike financial assets which are mostly marks on paper or records stored in computer files.  An example of a tangible asset that most people own is a car, or a home.  Keep in mind that cars deteriorate in value and homes can do the same, but many tangible assets increase in value because of scarcity coupled with increased demand.  An example of a real asset that has grown in value over the past decade is gold.

While many people collect actual physical tangible assets, in most cases it’s not practical for most people to collect, say, barrels of oil.  For these, the financial services industry created investments products that are backed by real assets such as gold, silver, oil and many other assets that are, or may become, scarcer or more valuable.

You can buy funds or ETFs that are backed by precious metals, by oil or natural gas, by real estate, by timber or lumber, by soybeans or cattle, by collectibles and even by toll roads.

The attraction of many tangible assets is that if inflation picks up, “real” assets are usually beneficiaries of price increases.  On the other hand, be careful of speculative excesses.  As large new oil and gas reserves are discovered and opened up, the scarcity value quickly dissipates and prices of these commodities can drop quickly. 

Tagged , ,
%d bloggers like this: