Tangible Investments
Tangible investments or those that are physical in nature, different to that of shares, securities or currencies as the name suggests, due to the fact they are tangible.
Tangible assets exist outside of an account balance, financial statement or exchange market. Put another way, tangible assets have a physical form and natural value. It's likely that you have already invested in physical assets in some way – you may have bought a house or car, collected a piece of art, kept a family heirloom, or bought gold or silver jewellery.
Many people prefer investing in tangible assets as they can physically hold them, see them, touch them, but this is in ‘most cases’, as with many tangible assets, you are buying them in containers, or as part of a shipment with the intention of selling them for a higher price in the future.
Commodities
Commodities are those assets such as coffee, gold, metals, grain, and fuel that can be produced in a raw form then bought and sold on the open market. They are often either raw materials or primary industries such as mining and agriculture and can include live trade markets, such as cattle and sheep.
There are several ways in which investors can delve into investment in commodities. Firstly is to invest in the physical asset, such as metal, grain, fuel barrels and more. They can then look into investing in the same asset class, but investing in ‘futures’ in those assets. This methodology is often used by a business looking to ‘hedge the price’ they pay on assets they use a lot of. For example, transport companies and airlines often purchase futures in the fuel process to hedge against adverse movements in commodity pricing.
“Investors can also invest through the use of futures contracts or exchange-traded products (ETPs) that directly track a specific commodity index. These are highly volatile and complex investments that are generally recommended for sophisticated investors only”.
Real Estate
Often one of the largest investments most people will ever make in their lifetime, real estate has for decades been the cornerstone of the ‘great Australian dream’. However with Australian housing prices, especially those in the major capital cities, skyrocketing, then crashing, then jumping up again, they have moved from a ‘safe house’ to almost a speculative instrument in some markets.
Real estate investment is much more than the investment in the family home. There are huge benefits both in terms of income and tax when you invest in other property such as an investment house or apartment, commercial real estate or even factories and warehousing.
Although real estate investing is a tangible investment, there are also investment opportunities within the real estate sector in which you as an investor don’t own the whole asset, but parts of it. This can be done in several ways, two of which are micro-investing and investing in a real estate fund.
Similar to the company Brick-X, micro-investing has become popular in the time of the millennial, as more and more people feel they are ‘priced out of the real estate market’ and can’t comply with the ever-increasing and ever-changing banking hurdles to get a home loan.
The second example of ‘alternative investments’ in real estate is funds, also known as development funds. These are often used by property developers to fund the purchase, design, development and marketing of properties so that they themselves do not need to foot the bill – or the risk of such an investment – entirely.
Infrastructure
Investing in infrastructure is one of the more ‘complex’ tangible investment vehicles, especially in comparison to purchasing a house or apartment. However, before you think you can invest some cash and pay for road work outside your home, then rename your street – think again.
“Infrastructure is one of the fastest-growing asset classes globally, with target infrastructure allocations increasing significantly over recent years. AMP Capital expects portfolio allocations to infrastructure assets to rise further in coming years as the benefits of investing in infrastructure are increasingly recognised.”
Investment in this asset class is done through a fund, as typically governments themselves fund – or are supposed to fund – large-scale development in the infrastructure needed around the country, or the world for that matter.
However, when the government runs short of money, or are looking to allocate those much-needed funds to other projects, institutions using investors’ money offer significant returns through infrastructure funds.
Alternative Investments
As an investor, it is paramount that you diversify your portfolio for a wide range of reasons. Most of all, it is to hedge your risk against volatility in any one company or asset type.
Extreme volatility has been felt across traditional investment avenues with 2018 viewed by many as the worst year since the GFC. Australia’s largest housing markets in Sydney (-10.4%) and Melbourne (-9.1%) dropping significantly since the highs of mid-2012.
The global financial markets are in turmoil with trade wars, potential impeachment of sitting US President Donald Trump, not to mention industry disruption, innovation and fluctuating commodity prices across the globe placing a feeling of uncertainty upon investor's portfolios.
Investing in alternatives to not only hedge but to prosper is becoming an attractive option to many investors due to such instability across assets that were considered well, as safe as houses.
From investment in art and collectables, which across the globe accounts for an estimated US$1.62 trillion in art and collectible wealth held by UHNWIs in 2016, and an estimated US$2.7 trillion by 2026, wealth managers seem to realise both the financial and emotional value attached to art and collectibles.
With traditional investment paradigms offering ownership of an asset or shares in a company being moved aside, as investors see the value in purchasing certificates – such as through blockchain, betting for or against market movements through leverage (such as CFDs and FX trading) and looking outside the traditional ways of investing for new opportunities.