Chris Johnson
Chris Johnson
Why Real Assets
A Real Asset is a tangible investment that has an intrinsic value due to its substance and physical properties.
Key considerations of any investor are whether their investment portfolio as a whole is structured as effectively as possible to offer growth, diversification, protection and opportunity. Here we look at some of the key reasons why Real Assets should be included in any portfolio to offer this.
Real Assets provide portfolio diversification as they are not correlated to traditional financial markets. Indeed, there are a wide array of diversification opportunities within the sector itself.
Their values also generally increase in line with inflation ensuring that they offer both growth and protection throughout each stage of the economic cycle. Their private nature tends to reduce volatility ensuring a greater element of “peace of mind” which has sorely been lacking in other markets.
Similarly, many real assets have offered unparalleled growth opportunities as witnessed over past decades, outperforming many traditional investment classes and providing attractive returns for investors.
Recently we have seen a sharp rise in investment by both private and institutional money towards real assets. This shift in favour of tangible assets has seen the overall sector grow from $23 Trillion to $43 Trillion in the last 10 years (186% increase – an average 18.6% per annum). This trend is set to continue and is expected to be valued at $80 Trillion by 2025.
Asset allocations into Real Assets by Institutional Investors has risen from 5% in 2000 to 25% in 2017 and is expected to rise above 40% by 2030, highlighting the mounting sentiment of savvy or professional investors for these assets which further reinforces the real growth opportunity the sector offers.
Another very powerful reason to embrace the opportunity these assets offer is the favourable tax treatment. The tax treatment of many real assets differs from that of other financial assets, allowances for potential depreciation may provide effective tax planning benefits to the investor and, dependant on tax residency, gains are free from tax altogether making them highly effective for both short- and longer-term tax and estate planning requirements.
Real Assets tick all of the boxes, providing investors with a robust investment opportunity, intrinsic value, significant growth potential, security and effective but simple tax efficiency.
Why Now?
The Fintech revolution continues to encroach and envelope the asset spectrum. As this phenomenon evolves even the rarest and historically inaccessible assets will become widely available to the masses via tokenisation and other forms of fractional ownership. As with all finite assets, this revolution will push the price of real assets ever higher. Few people are aware of the opportunities within the real asset spectrum even fewer have the knowledge or expertise to enter this highly secure and lucrative market.
The recent record economic stimulus compounded by mounting fears of inflation means there has never been a better time to enter the realm of real or tangible assets. Real Assets provide returns uncorrelated to financial assets and the broader economy offering a safe haven for your hard-earned capital. Tangible assets have an embedded value that increases with scarcity, age and demand.
We have seen a rise in the allocation to real assets at an unparalleled rate and this is expected to continue when other predictions are far bleaker. The rise of wealth in Asia and other emerging markets in addition to the increased focus from the middle and upper classes within more established markets have seen a significant trend emerge toward luxury goods and real assets.
With the emergence of Fintech providing solutions for ensuring storage, safe custody and insurance of Real Assets it is now far more efficient, cost-effective and secure to own and hold these assets than ever before.
Now is certainly the time to take this sector seriously and include these assets into your portfolio.
