Extreme volatility in financial markets as has occurred in the U.S. stock market in recent weeks is pushing investors to look for “safe havens” for capital that offer greater protection for capital preservation – and the potential to generate yields even amid economic uncertainty.
Investing in tangible or hard assets is a practice that originated well before the creation of Wall Street and the modern day reliance on stocks and mutual funds to build wealth. People have been investing precious metals, jewelry, art and real property for centuries. The benefits of those hard assets have proven to stand up over time and they continue to represent a solid strategy for investment portfolios. Some of the key financial benefits include:
- Portfolio diversification
- Preservation of principal
- The ability to hedge against inflation
In addition, there is certainly something to be said for the added advantage of investing in assets, such as fine art or a real estate property that comes with personal satisfaction, prestige or the ability to create a family legacy that is handed down from generation to generation of family members.
Tangible or “real asset” investing strategies have exploded in popularity among institutional investors over the past two decades. Those real asset strategies encompass commercial real estate, such as office buildings, apartments and shopping centers, as well as farmland, timber, energy pipelines along with other natural resources and critical infrastructure. One of the reasons institutions like the benefits of real assets is because of their relatively stable performance over time, as well as their low correlation with stocks and bonds. A 2017 report from global asset management firm Brookfield noted that the estimated global value of the real asset market at some $5.6 trillion. Some common examples of tangible assets for individual investors are:
Real estate: Property, whether it is a home, land or an ownership stake in income-producing rental or commercial property tends to appreciate in value over time. Commercial and multifamily real estate assets have generated annual returns of 9.3% based on a 20-year average as reported by the NCREF Index, an industry standard benchmark for institutional real estate investments.
Gold: The values found in gold and other precious metals, such as platinum and silver, have held up for centuries. Investors can invest in gold by buying gold bars or gold coins, such as the South African Krugerrand. It is important to note that gold prices can fluctuate during times of volatility, which makes the timing of buying and selling gold important. The current price of gold as of March 31, 2020 was about $1,620 per ounce, which is up about 20% compared to prices of $1315 in March 2019. However, it is also down about 18% compared to Oct. 2011 when values were hovering around 1965.
Art & Collectibles: There are a variety of collectibles known for holding or appreciating in value that range from fine art, rare coins, antiques, vintage cars, wine and stamps to baseball cards and books. Owning the right piece of art can certainly be a windfall. For example, Claude Monet’s Meules (1890) sold for a record high $110.7 million at auction last year. One of the keys to investing in collectibles is having the knowledge or expert advice to make sure you are choosing an investment wisely, especially when it comes to having a realistic view of the price you are paying and the outlook for future value.
Jewelry: Unlike buying a painting or sculpture, one of the added benefits of investing in jewelry or fine watches is that owners can wear and enjoy their investment – without worrying about compromising its value. The value of jewelry might be in the gems, design or unique history of a piece. One of the most famous pieces in the world is L’Incomparable Diamond. The 637-carat necklace is believed to be one of the most expensive necklaces in the world at an estimated value of $55 million. Some of the top jewelry brands that attract investors include the likes of Cartier, Van Cleef & Arpels, Bulgari and Tiffany & Co.
Tangible assets are viewed as being less risky than other investments, such as buying stock, because they do have an intrinsic value to fall back on in even during the worst economic times. For example, a commercial real estate property, such as an office building or apartment, may lose tenants that impact rental income and returns that investment generates. However, values do not fall to zero because of the value that exists in the property itself, including the physical structure, the land it sits on and perhaps even a unique location or competitive position in a marketplace.
However, it is important to note that even tangible levels do come with a level of risk. Some common risks include:
- Assets can be susceptible to a decline in value, especially if the purchase price is inflated or subject to market forces, such as dramatic changes in supply and demand, that create a shift in pricing.
- Damage that reduces value.
- Lack of liquidity. Most tangible assets are not as liquidity as trading stocks or bonds.
Investors also need to factor in any additional fees related to managing, maintaining or storing tangible assets that can offset value gains. As with any investment and financial planning strategy, it is always wise for investors to conduct careful due diligence and work with a trusted advisor.
About CanAm Capital Partners
CanAm Capital Partners, LLC (“CACP”) is a New York-based private equity investor, manager and advisor with a primary focus on real estate principal investment. CACP is an affiliate of CanAm Enterprises, the largest EB-5 lender in the United States. CACP and its affiliates have been involved as a principal or lender in transactions with an aggregate transaction value in excess of $3 billion in multiple markets across the U.S. For more information, please visit www.canamcapital.com/cacp.