What we see with the naked eye is easier to believe than the things we can’t. This principle is the same for tangible assets and investments. It’s easier to believe in/buy into tangible assets other than buying into an investment portfolio made up of equity, bonds, commodities and the likes. I don’t blame you, many of us feel the same.
Let’s first understand what are tangible assets. They are actual assets that can be seen or touched when purchased and held in possession of the owner. These types of assets are real estate or commercial property, cash, collectable cars(that increase in value) etc. These types of assets are bought and held for long periods of time before a true return can be seen.
Based on the possibility of assets increasing in value and also the provided security that your tangible asset will increase in value, we now see why tangible assets have been seen as lucrative. Intangible assets play a part in your investment portfolio however, they should not make up the whole of your investment portfolio, here’s why.
The other type of asset that has been on everyone’s minds lately is investments. Investments encompass various asset classes of investments that are placed in investment vehicles. They are usually derived in shares, units or quantified in some way. This assists in placing value to assets that may not be touched or seen. Take for instance the investment in shares, you cannot actually see or touch a share but it is used a mechanism to quantify ownership in certain companies. Shares may be more volatile and result in rapid earnings or even losses, they also play an integral part in a financial plan.
When weighing your options on whether to invest in tangible assets or an investment portfolio, you need to understand what role each plays in your holistic portfolio. Let’s have a look at the following factors for comparison when making such a decision:
Tangible assets such as real estate property have a gradual and consistent growth rate. If valued appropriately and bought with the intention of keeping it as an investment, tangible assets show a consistent growth over the years. The growth may not be as substantial as what the shares market is providing however it does provide consistency. Investment portfolios on the other hand, especially long term investment portfolios, experience volatility and fluctuation on the returns of the investments. This means that in some years returns may be low and in some years returns may be exceptionally high. There is a distinct variation between the two and both play an important role in a financial plan.
One of the biggest advantages that you may have is owning an asset that can be used as collateral. Collateral is a security that you provide for any loan requests that you may have. In most instances intangible assets are known as a great collateral for lenders. This allows you to borrow money with the intention of increasing wealth. This is a powerful tool to have and intangible assets allow you this privilege.
Within one’s financial plan assets are required that can be converted into cash when the need arises. Tangible assets are harder to convert into cash and also may take a longer period of time to sell. On the other hand investments in investment portfolios are created with liquidity bourne in mind. An investment portfolio, dependant on the investment strategy and vehicle, can be converted into cash easily. This allows you to plan for short to medium term goals using these investments and knowing that you can get your money quicker then the time required to convert intangible assets into cash. This allows you flexibility in your financial plan.
Taking into account this information it is evident that both intangible assets and investment portfolios are important in a holistic financial plan. As to how much should be invested in each is solely dependant on your financial needs inclusive of your goals and objectives.