Building up a portfolio of real assets takes time, but creating that portfolio is only the start of the work. To maximize profits and to minimize risks with real asset portfolios takes careful management. As with all investments, the value of a real asset portfolio can go down as well as up, but there are some practical strategies you can use to boost your chances of creating a profitable portfolio.
What are real assets?
Real assets are an investment class that covers physical assets. Examples of physical assets are commodities such as metals or crops, land, real estate, equipment, and natural resources. When putting together an investment portfolio, you may choose to invest exclusively in real assets or use them as a diversified approach to a broader portfolio that might also include stocks, currency, cash, and cash derivatives.
The risks of real asset investment
Before starting in real asset investment, it is vital to be aware of the risks involved. Usually, real assets are more stable than other asset categories and are useful for hedging against inflation. Some forms of real assets, such as real estate or infrastructure projects, can generate a predictable and reliable income.
However, there are also risks. Real assets do not offer so much in the way of liquidity, often taking time to sell, meaning that they are often a long-term investment and not a good idea if you are likely to want to liquidize an asset fast.
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There may also be associated costs with real assets such as storage, maintenance, and transport that can eat into profits. Additionally, they may be vulnerable to geopolitical changes when man-made or natural disasters such as wars, earthquakes, or floods cause supply chain and transportation issues.
Seek expert advice
For those new to investing in real assets, a key strategy should be to seek advice from those with experience; it will be time and money well spent. Using an investment management firm with a proven track record in successful investments will increase your chances of having a profitable portfolio. However, choose an investment management firm wisely as not all firms will have sufficient experience in real assets for you to be sure their help will be an advantage.
One investment management firm with a high level of expertise in real assets is GenTrust that has Steven Rosenblum on the team. With responsibility for the selection, oversight, and management of the firm’s public and private investments in real assets, his work sourcing, structuring, and executing transactions on behalf of his clients can help them meet their long-term financial goals.
DiversificationÂ
You can minimize the risks of market volatility and the impact of geopolitical events by having a diverse portfolio of real assets. Diversity will ensure that, should an adverse event in some part of the world affect one of your assets, it will not seriously reduce the overall value of your portfolio. The risks of market volatility too can be spread. If, for example, the price of oil drops, it will not have such a significant impact on your portfolio if the price of gold or tea holds steady or increases.
Balance real assets with other investments
While investing solely in real assets is certainly possible, that may not be the best option. Often real assets increase in value when other investments such as stocks decrease, and the opposite is also true. Suppose your investment portfolio includes a mixture of both real assets and other asset classes. In that case, you stand a better chance at riding out the bumps in the road and allowing your portfolio as a whole to maintain or increase its value.Â
Take advantage of income-producing real assetsÂ
Commodities are well-worth including in a portfolio of real assets. However, it should be remembered that to make money with them, you rely on selling them for more than you paid. While they are in your possession, they do not make money, unlike stocks which may pay dividends, for example.
However, other real assets such as real estate, land, and infrastructure can earn you money while they are in your possession. Unlike many other assets, this income tends to be stable and reliable, allowing you greater flexibility when planning your finances. If an asset is earning for you while it is in your possession, it will not matter so much if it takes time to liquidize. It might also allow you greater flexibility about when you choose to sell.
Although there are risks in investing in real assets, they are an asset class well worth consideration. By taking advantage of the expert advice and help in management available and building up a diverse portfolio of real assets and other asset classes, you stand a good chance of making money if you make your real asset investments a long-term project.
