In today's world of credit cards and cryptocurrency, it sometimes feels like money only has digital value. However, physical assets are more than just cold, hard cash. These investments offer a way to broaden your portfolio and build wealth. In this article, we'll cover what physical assets are, the different types, and the best ones to buy!
What are physical assets?
Physical assets are investments that take a physical form and hold some sort of established value. In other words, it’s something that you own that can be sold or exchanged. They might also be called hard assets, tangible assets, or fixed assets.
They are different from liquid assets which are typically made up of cash and cash equivalents.
As we live in a physical world, many assets are physical. For a business, this includes their property and buildings, equipment and supplies, and inventory. For an individual, this includes stocks, homes, and collectibles. However, a few assets are intangible, such as trademarks, relationships, or reputation.
How physical assets work
Physical assets are a part of one's asset-building strategy. They work by having some future economic benefit that can be estimated easily, are controlled by the owner and result from a previous transaction (aka when you bought it from the creator or prior owner).
All your physical assets combine to create your investment portfolio. As each type of asset comes with its own potential risks and rewards, it’s best to diversify. This means you should have a wide mix of investments so that you’re not too dependent on a particular type of asset.
Physical assets examples
The goal of owning physical assets is to buy something—such as a piece of land—now, with the hopes that you’ll be able to resell it for more in the future.
Another way to leverage your asset is to invest in that land, knowing that it will allow you to build something that generates more income or value for you over time.
For example, you could build an office or factory, farm the land, or build a home for generations to come.
For the average investor, these are some of the most common physical assets you can purchase.
Perhaps the most “traditional” types of investments, are your typical stocks, bonds, or funds. You may already have these assets through your retirement fund and other investments you’ve done in the past.
This is another common and approachable investment. Your primary home becomes an asset through the equity you earn and its resale value.
You might also own a rental property, farmland, or simply a piece of land that you’re hoping will increase in value over the years.
If you have an entrepreneurial spirit, this is another asset option. Whether you want to open a brick-and-mortar operation or run an online business, your business has the potential to create and hold a lot of value.
Many people build businesses with the intention of selling them—including both the physical and intangible assets that the business owns—to the highest bidder.
Old stuff doesn’t just hold sentimental value. Anything from fine art and antiques to unique cars and rare items can be considered a physical asset.
A word of caution though: these items are often valued much more subjectively than many other asset types. This can either play to your favor or cost you big time in the resale value.
These are finite, raw materials or agricultural products, such as oil, precious metals, corn, and timber. They’re valued almost entirely based on supply and demand at any given moment.
While you can dabble with this type of asset, it might be best to become well-versed in each specific industry before you invest too much here.
However, they may require additional research since they’re not as commonplace as US stocks or property.
The best physical assets to buy
Like all wealth-building, the best investment is the one that makes sense for you and your goals. And just like you want a balanced stock portfolio, you should also aim to acquire different types of physical assets that complement all your other investments.
One of the main factors to consider is whether or not you’re investing long-term, or hoping to have immediate returns. If you invest in a startup, you may have to wait years before they make a profit, which will delay how soon you’ll receive dividends or be able to sell your shares.
Whereas if you invest in a commodity like gold, you can aim to buy when its value is down and sell when the value has increased, without needing to hold onto that asset for a long period of time.
Ultimately, you need to balance accumulating assets while avoiding liabilities. Shoot for assets that gain value over time, rather than become liabilities by depreciating the longer you own them.
Owning physical assets is a great idea!
Now’s the time to invest in your future. Acquire those physical assets that speak to you and leave any others behind.
Regardless of what you choose to pursue, be sure to do your research to understand all the risks, costs (like property taxes or upkeep), and potential for profit. You’ve got this!