A:

Savers who deliberately buy tangible assets for investment purposes value their tangible goods as a form of value diversification and as a hedge against economic uncertainty.

Some might believe that tangible assets represent a higher change at high returns than capital assets, such as stocks and bonds. You should consider investing in tangible assets if and when they make sense as part of your overall financial plan.

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 jewelry.

Some investment analysts consider current assets, such as short-term securities and cash equivalents in deposit accounts, to be tangible assets.

Diversification Through Tangible Assets

Most investment publications refer to tangibles as "alternative investments." Standard types of tangible investments include real estate, gold bullion, art, antiques and other collectibles.

These asset classes tend to have little positive correlation with the stock and bond markets. Some are even counter-cyclical; an investment in tangible assets could reduce your exposure to overall market risk in a way that most intangible assets cannot.

Protection from Inflation

Advocates of many tangible assets, particularly bullion coins and bars, tout inflation protection. History seems to validate the use of tangible goods as an inflation hedge. In the 100 years following the creation of the Federal Reserve, the purchasing power of the dollar declined nearly 97%. The inflation-adjusted value of an ounce of gold increased by more than 300% during that same time period.

Any bullion magazine highlights the fact that gold has been valuable for thousands of years and that it has never carried a zero value. This is also technically true. Gold has historically served as a source of jewelry and exchange since at least ancient Egypt and, unlike intangible assets, always carries economic value.

Personal Enjoyment

Many tangible investments can create a psychological benefit. You might buy a collectible or piece of art because you value its display in your home as well as its investment potential. Similarly, your house itself might be a long-term tangible asset, but it serves many important functions for you and your family.

Investment in tangible assets offers the unique dynamic of immediate personal satisfaction, or utility, and the potential for increased future consumption through price appreciation. This is less likely with intangible assets.

RELATED FAQS
  1. Why is the amount of net tangible assets an important benchmark?

    Find out more about net tangible assets, how to calculate net tangible assets and the importance of net tangible assets and ... Read Answer >>
  2. What is an aggregate limit and what type of insurance is it usually associated with?

    Understand why tangible assets are important to a company. Learn why the ownership of a tangible asset has benefits as well ... Read Answer >>
  3. How are net tangible assets calculated?

    Learn about net tangible assets, what it measures and how to calculate a company net tangible assets using examples. Read Answer >>
  4. How is depreciation related to the carrying value of a tangible asset?

    Understand how depreciation is related to the carrying value of a company's tangible asset. Learn how accumulated depreciation ... Read Answer >>
  5. What are the different types of tangible assets?

    Learn what tangible assets are, what other names they are called, what specific items are included and how they are handled ... Read Answer >>
  6. What is the difference between goodwill and tangible assets?

    Find out about tangible and intangible assets, and understand how intangible assets, such as goodwill, do not take physical ... Read Answer >>
Related Articles
  1. Managing Wealth

    Explaining Net Tangible Assets

    Net tangible assets is a company’s total assets subtracting both intangible assets (such as goodwill and intellectual property) and total liabilities.
  2. Managing Wealth

    Retirement Wealth: The Place of Tangible Assets

    When building a retirement portfolio, you need to determine how tangible assets fit with traditional investment products in your wealth-building strategy.
  3. Managing Wealth

    What's a Tangible Asset?

    Tangible assets are property owned by a business that can be touched -- they physically exist. Examples include furniture and fixtures, computer hardware, delivery equipment, leasehold improvements ...
  4. Managing Wealth

    Comparing Tangible and Intangible Assets

    Tangible assets are physical assets such as land, vehicles or equipment.
  5. Managing Wealth

    How to Calculate Your Tangible Net Worth

    You can calculate your tangible net worth with a simple equation.
  6. Small Business

    Your Business Could Ruin Your Investment Strategy

    It's important to properly value your business assets when managing your portfolio. Here's why.
  7. Managing Wealth

    What's an Asset?

    An asset is a resource with economic value.
  8. Managing Wealth

    What is Asset Management?

    In the investment world, asset management refers to active management of an investor’s portfolio by a financial services company – usually an investment bank.
  9. Investing

    Intangible Assets Provide Real Value To Stocks

    Intangible assets don't appear on balance sheets, but they're crucial to judging a company's value.
RELATED TERMS
  1. Net Tangible Assets

    Calculated as the total assets of a company, minus any intangible ...
  2. Price to Tangible Book Value - PTBV

    A valuation ratio expressing the price of a security compared ...
  3. Tangible Book Value Per Share - TBVPS

    A method of valuing a company on a per-share basis by measuring ...
  4. Tangible Net Worth

    A measure of the physical worth of a company, which does not ...
  5. Tangible Common Equity Ratio - TCE

    A ratio used to determine how much losses a bank can take before ...
  6. Acquisition Adjustment

    The difference between the price an acquiring company pays to ...
Hot Definitions
  1. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
  2. Pro-Rata

    Used to describe a proportionate allocation. A method of assigning an amount to a fraction, according to its share of the ...
  3. Private Placement

    The sale of securities to a relatively small number of select investors as a way of raising capital.
  4. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  5. Backward Integration

    A form of vertical integration that involves the purchase of suppliers. Companies will pursue backward integration when it ...
  6. Pari-passu

    A Latin phrase meaning "equal footing" that describes situations where two or more assets, securities, creditors or obligations ...
Trading Center