Tangible assets can provide investors with a unique level of diversification for a portfolio. While you might already be familiar with tangible assets like pieces of property and precious metals, you can find additional ways to add physical assets to your asset list. Read on to learn more about tangible assets and how they work in terms of diversification.
- What is a Tangible Asset?
- Types of Tangible Assets
- Inventory
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What is a Tangible Asset?
The word “tangible” is defined as “perceptible by touch;” when something is tangible, you can physically touch it or hold it in your hands. Tangible investments exist outside of a financial or asset account, and they have a physical form. If you’ve ever bought a house, won a valuable piece of artwork at an auction, or bought yourself a nice piece of jewelry, you’ve already invested in a tangible asset.
Tangible assets are sometimes also referred to as “alternative assets” or “physical assets.” Most investors who invest in tangible assets do so to diversify their portfolios and hedge against inflation.
Types of Tangible Assets
You can invest in multiple types of tangible assets. You might also want to invest in multiple classes of tangible assets to add another layer of diversification.
Inventory
If you’re a business owner, you may have multiple types of inventory with intrinsic value. Raw materials, finished products and goods in process are types of tangible assets you invest in through a business.
Furnishing and Fixtures
You’ve probably put a number of investments into your business beyond inventory and the raw materials used to create it. Things like office furniture and fixtures, computers and other tools that you use to conduct business are also considered tangible assets, as they have an intrinsic value.
Land
Land is a valuable tangible asset. Unlike inventory and furnishings, land is less likely to decrease in value over time.
Buildings
Buildings built on land are also tangible assets. Buildings can generate returns on initial investments by acting purely as investment properties, increasing in value over time, or they can be used to generate rental income.
Precious Metals
Precious metals like silver, gold and platinum are tangible assets, as you can hold them and they maintain an intrinsic value. Gold is one of the most well-known tangible assets and has been used for decades as a non-traditional investment. You can find multiple ways to invest in physical gold, including bullion gold coins, bars and fine jewelry. If you’d prefer to invest in gold without being responsible for storing valuable items, you can also invest in gold exchange-traded funds (ETFs), which trade similarly to individual stocks.
How to Value Tangible Assets
After you’ve made the jump to investing in tangible assets, you might be wondering how you can track the value of your investment and how it is changing over time. While you can’t log into a brokerage account and see the value of physical assets conveniently calculated for you in the same way as stocks and ETFs, several methods are used to value tangible investments.
Specific Appraisal
For many types of tangible assets, you’ll need to seek a specific appraisal to determine their exact value. This factor is especially true when it comes to items like collectibles and antiques that must also have their authenticity verified before an exact appraisal can be conducted.
An appraisal is a professional estimation of what something is worth. If you’ve ever bought a home in the past, you are already familiar with the appraisal process. During an appraisal, an expert within the industry of your tangible asset will take a look at its condition and assign a value to the item based on their experience. Depending on the type of assets you own, you may need to seek a new appraisal every year to keep up with the current value of your investments.
Liquidation Price
You can also get an idea of the value of your tangible assets by researching the liquidation price. Assets like raw materials, furnishings and inventory usually depreciate over time, which means that the liquidation price may change regularly and drastically depending on current market circumstances.
Replacement Cost
For some types of items, you can consider the value in terms of a replacement cost. For example, if you use a special type of equipment in your office, you can get an idea of how much it is worth by researching how much it would cost you to replace each item with the same model. If the model of equipment you need is no longer in current production, you might be forced to use a more recent make as a model for your replacement cost calculation.
The Benefits of Tangible Assets
Tangible assets can provide you with a few important benefits in the context of a long-term investment strategy.
- Hedge against inflation: Some types of tangible assets are known to act as a hedge against inflation, retaining their value when the value of the dollar drops. Examples of tangible assets that have traditionally been used to hedge against inflation include gold and real estate investments.
- Generally less correlated with the stock market: In periods of economic downturn, tangible assets tend to perform well. This factor can make tangible investments more appealing when stocks, ETFs and other types of funds are doing poorly.
- Usually less volatile: Some investors choose certain types of tangible assets because they are less likely to drastically shift in value. For example, the share price of a stock might fluctuate on a daily or even minute-to-minute basis. However, the price of real estate tends to remain steady, showing lower percentage changes in value on a month-to-month measurement. This feature can make some types of tangible assets appealing for older investors or those nearing retirement.
Compare Tangible Asset Investment Platforms
Once you decide that you want to add tangible assets to your investment portfolio, you’ll need to choose how you want to invest. Investing in alternative assets doesn’t necessarily have to mean heading to your local jewelry store or real estate office. The following platforms make it easy to invest in tangible assets from the comfort of your home.
- Best For:Retirees Wanting Security Against Market CrashesVIEW PROS & CONS:securely through Lear Capital's website
- Best For:Gold IRAVIEW PROS & CONS:securely through Augusta Precious Metals's website
- Best For:Investing in Wine and WhiskeyVIEW PROS & CONS:securely through Vinovest's website
- Best For:Long-Term Farmland InvestmentsVIEW PROS & CONS:securely through FarmTogether's website
Frequently Asked Questions
Is cash a tangible asset?
Yes, cash that you hold as paper money or in an interest-generating bank account is a tangible asset because it holds an intrinsic value. While that value may depreciate over time, it will never be $0, as is possible with some intangible assets (like patents).
What are tangible and intangible assets?
Tangible assets are assets that have a physical form and thus maintain some type of intrinsic value; in other words, tangible assets are investments that you can touch. Examples include land, business equipment and precious metals. Intangible assets cannot be held, and their value comes from a more abstract evaluation. Examples of intangible assets include patents and trademarks.
About Sarah Horvath
Sarah is an expert in the insurance, investing for retirement and cryptocurrency space.