Real Asset Investments
What are real asset investments?
As the economy continues to fluctuate, many investors are looking for new ways to diversify their assets and protect their portfolio. If you already have a healthy collection of stocks and bonds, you may be considering delving into the world of real assets.
Because real asset investments aren’t directly correlated to the market, they provide investors with diversification while hedging against inflation. And because they’re illiquid, they often retain or grow in value when the rest of the market is volatile.
What is a real asset?
Anything that has any sort of value is considered an asset. Assets are often divided into three categories:
- Financial Assets
- Intangible Assets
- Real Assets
Financial assets are what most investors are familiar with – things like stocks, bonds, and mutual funds. Businesses will often invest in intangible assets as well, such as brands, trademarks, or patents. However, real assets are always tangible; as in you can see and touch them.
Real assets are things you see every day. The buildings around town, cars on the roads, even the roads themselves are considered real assets. These items have intrinsic value, and you can clearly understand why they’re worth owning.
3 types of real asset investments
Real asset investments could be anything around you with value. However, most financial experts classify real assets into three categories. Before you begin investing, you’ll want to consider which types of real assets interest you and would properly balance your portfolio to meet your financial goals.
Real estate is a very popular form of real asset investing. Even in your personal life, buying a house is considered a good investment since you gain equity – but residential real estate isn’t the only kind that can grow your net worth. In addition to rental properties and real estate investment trusts (REITs), there are a variety of alternative real estate investment options that are valuable to investors.
Investing in real estate could mean commercial buildings such as offices or shopping centers, multi-family housing such as apartments or condos, or specialty buildings such as hospitals or warehouses. Real estate investing could also mean purchasing land and letting it grow in value before selling it off. Many investors will also join together for real estate partnerships. With several investors putting together their cash, expertise, and network, they can often grow their real estate investments even more significantly than on their own.
Infrastructure is any system that helps businesses or the community operate, making it another popular form of real asset investments. Examples of infrastructure investments are roads, bridges, railroads, power lines, towers, and airports. Many types of infrastructure are facilitated by the government, but the private sector has taken to investing in these sorts of projects to help fund new systems and improve them as needed.
Because these are all essential to everyday living (or essential to growing the community and, in turn, growing tax revenue), infrastructure investments typically see consistent returns. Additionally, because of the demand for these projects, there are always new investment opportunities arising within infrastructure.
Commodities are basic materials and resources that are either consumed directly or used for the production of goods. This could include oil, natural gas, energy, precious metals, and food/agriculture. These resources are at least somewhat limited, making them highly sought after and giving them consistent value.
Because these are basic essentials, the demand for commodities always exists, despite how the economy is performing. In fact, the price of these assets often increases during times when the rest of the market struggles to retain value. And as the commodities are used up, there is consistently demand for more. Especially in times of high inflation, commodities will retain their value despite the decreased buying power of the dollar.
How do real asset investments typically perform?
Financial assets perform differently than real assets due to the nature of the investment, meaning there’s often little or no correlation between real assets and the rest of the market. This is because real assets have intrinsic value, while financial assets’ value is based on predicted performance and current demand. That being said, financial assets can gain or lose value very quickly, and there’s no surefire way to predict what they will do.
Real assets, however, have value because they are useful – and often essential – items. No matter what the market is doing, people need buildings and railroads and soybeans to keep the community moving. Real assets also aren’t liquid, meaning they can’t just immediately be bought and sold at the slightest change in the market. Their stability and essentiality means that even during an economic downturn, real assets tend to retain or even grow in value.
Real asset investments to make an impact
Another benefit of investing in real assets is that you, as the investor, have the power to make an impact. Because you are using your own capital to fund real projects, you can choose to invest in causes that matter to you. This means that if you want to do your part to create a more sustainable world, you have the power to fund real estate or agriculture projects that have committed to sustainable business practices. You could also choose to invest in wind or solar energy options in your community.
However, impact investing isn’t limited to just environmental initiatives; there are also many social causes that you can put your money towards. As a private investor, you could help fund affordable housing options to help those in need. There are also projects that will build new schools or healthcare facilities in underserved communities. And although your capital is sure to make a difference, you’re also still likely to see returns, making them worthwhile for your portfolio as well.
How do you invest in real assets?
Investing in real assets isn’t the same process for buying and trading financial assets. Before making an investment, you’ll want to perform due diligence on the asset, weighing the potential returns against the risks and ensuring it’s a good investment for your financial goals. There are also investment minimums and transaction fees associated with these investments that will need to be considered.
But if you’re looking to add real asset investments to your portfolio, there’s no better way to get started than with OpenAlt. OpenAlt is an agnostic platform that allows you to browse the marketplace for alternative investment opportunities. And with our commitment to transparency and automated due diligence workflows, you’re sure to find a project that fits your goals. Schedule a demo today to get started.