Tangible assets are another way of diversifying your portfolio.

The main points in a nutshell

  • Tangible assets are alternative assets in physical form. In this respect, they differ markedly from traditional assets.
  • Because of their intrinsic value, they offer a certain level of protection against inflation. While the monetary value of equities and bonds falls in real terms in the event of positive inflation, tangible assets are often more likely to withstand depreciation.
  • Thanks to the different value drivers of tangible assets compared to traditional investments, they lend themselves well to additional diversification of a portfolio.
  • Tangible assets can be various physical objects, e.g., precious metals such as gold, raw materials, real estate or even collector’s items such as art, jewelry or classic cars.

What are tangible assets?

Tangible assets are generally material goods that exist physically and which have a real (material) value. They are said to offer some protection against inflation because they are less dependent on monetary value. As they exist physically, they have an intrinsic or material value.

If, for example, the monetary value decreases, this has a limited effect on the intrinsic value of a property. Tangible assets are not as susceptible to changes in interest rates and developments on the market as stocks and bonds. Investments in tangible assets therefore help diversify a portfolio. However, there are a few important points to be aware of.

What are the most common tangible assets?

Precious metals

Precious metals are generally regarded as more crisis-resistant investments. The classic among them is gold. In the case of precious metals, it is important to note that investing in physical forms, such as gold bars or silver coins, better protects against depreciation due to inflation. However, precious metals can also be purchased as securities, for example as part of an ETF.

Gold has a reputation for being a stable financial investment. However, its price is still affected by external factors. For example, it is susceptible to political and financial crises, to realignments of monetary policy or to expectations that inflation will rise. At such moments, many investors invest in gold in the hope of benefiting from a comparatively lower fall in value.

Commodities

Investments in commodities such as coffee, oil or gas are other forms of tangible assets. However, unlike precious metals, retail investors usually cannot invest directly in these goods in their physical form. Accordingly, shares and certificates are traded instead. Political changes in the producing countries, economic fluctuations or restrictions on production and supply chains can bring about major price changes and thus make the investment riskier.

Real estate

There are a few reasons to buy real estate. Not only can you live in it yourself, it is also a good investment opportunity. Acquired as a so-called investment property, the investor receives a regular income in the form of rent and often benefits from increases in the value of the property over time. Real estate thus offers an alternative way of generating returns, compared to, for example, stocks or bonds. It also offers some protection against inflation, as the real value remains constant even when the value of money is being eroded.

Read more about real estate as part of an investment portfolio in our article “Investing in real estate as an investor

Collectibles

Investing in art or collectibles is usually something for enthusiastic and experienced investors. In addition to luxury items such as watches and jewelry, classic cars are also popular collectors’ items The challenge with these tangible assets is that the actual material value often bears little relation to the purchase price.

If you acquire a collector’s item as an investment, you are speculating that the object will achieve the value of a collector’s item over time and thus can be sold at a higher price.

What are the advantages of tangible assets?

Portfolio diversification

In an investment context, diversification is one of the major benefits of tangible assets. The physical attributes of tangible assets are a major differentiator from non-tangible assets, such as shares or bonds. This results in different drivers for changes in value. In times of crisis, the value of gold is a good illustration – while the stock market tends to fall during periods of turbulence, gold often gains in value, or its losses are more limited. This allows for greater risk diversification for your portfolio.

Some protection against inflation due to intrinsic value

Tangible assets have a specific intrinsic value and in most cases at least a minimum material value – regardless of exchange rates or money. This means your assets are protected to a certain degree. Whereas money and investments that are not tied to a physical value lose value in real terms in the event of positive inflation, tangible assets, such as real estate, can often resist devaluation for longer or are exposed to other mechanisms.

Personal use

As tangible products, tangible assets can also serve investors’ own use or enjoyment – such as a house or a painting, for example.

What are the drawbacks of tangible assets?

Exchange rate fluctuations

Exchange rate fluctuations do not affect tangible assets per se. However, since tangible assets are often traded in forward contracts and certain types of commodities are traded in a major currency such as US dollars, currency risk comes into play.

Example: You buy a gold bar in US dollars at the exchange rate of 0.95 USD/CHF. When you want to sell the gold bar a month later, the exchange rate has dropped to 0.90 USD/CHF. You therefore incur a loss due to the exchange rate.

Expert knowledge

The price of tangible assets is not always completely transparent and requires expertise, especially in the case of goods that are not traded on exchanges or similar platforms. For example, inexperienced investors cannot tell the value of a work of art directly. They could fall into price traps when trading.

Should you invest in tangible assets?

Whether an investment in tangible assets is right for you should always be considered individually, depending on your own investment knowledge and available financial resources.

Our ¶·Å£ÆåÅÆÔÚÏß advisors will be happy to help you by providing further information about these and other alternative investments

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