Real assets are tangible items that have intrinsic value, such as land, gold, and property. They have intrinsic value because of their substance and physical properties. In a company, they sometimes refer to physical capital, which is a means of production.
Examples of real assets
Real assets such as gold and land are a key part of an investor’s portfolio. Both are alternatives to financial assets such as stocks and bonds.
Besides gold and land, other examples of real assets are:
- Real estate
- Natural resources
Advantages and disadvantages
They not only offer income streams in the future but also become an alternative in diversifying investments. Allocation to real assets allows investors to minimize losses during the financial market downturn. Gold and land have proven to be the best way to hedge.
They tend to be more stable than financial assets because they have intrinsic value. Their value is not eroded, even when inflation soars. Therefore, investments in these assets are very suitable during times of inflation because they are more stable and tend to outperform financial assets during the period.
However, they also have disadvantages, including:
- Less liquid
- Transaction and storage costs are more expensive
- Takes longer to convert them into cash
- Compared to financial assets, we find it more challenging to measure their fair value