There is great appeal in hard assets to investors that are anxious about inflation and stock market volatility.
What are Hard Assets?
A hard asset is a tangible or physical item or object of worth that is owned by an individual or a corporation. Examples of hard assets are tangible objects such as land, an office building, oil, gold or diamonds. Their chief appeal is that they retain some value no matter how far their market prices may fall.
What is an Intangible Asset?
They are the opposite of an intangible asset, which is a non-physical item that still has value such as goodwill, investments in securities, a trademark or a patent. If an investor’s portfolio is primarily composed of intangible assets, the financial security hinges on the value of the nation’s currency. If the currency devalues, so does the portfolio.
The Value in Commercial Real Estate
Hard assets tend to hold their value. Even if a nation’s currency were to disintegrate, there would still be intrinsic value in real estate. Real estate properties are useful and can be exchanged for other items of value. Intrinsic by its nature, real estate can be traded or sold for things that support and sustain life. Hard assets are fundamentally valuable because there is limited supply.
Hard assets are an excellent hedge against inflation, meaning their value rises as the general price levels for goods and services increase. This is known as Consumer Price Index or CPI. Over the long-term, real estate is usually an excellent investment response to inflation. In fact, real estate sometimes sees its greatest price appreciation during periods of high inflation. This is especially true since as rents rise, people become increasingly interested in owning real estate as a way of getting the tax benefits which help offset the general level of inflation.