Sunday, March 1, 2015

Preferring Tangible over Financial Assets

The stock market rise of 2013 and 2014 seems almost unstoppable.  Even when there are pull-backs, it seems they’re brief in duration and small in their contraction.  While this is great for many investors at the moment, it could make the fall all the more difficult to bear when it eventually comes.  And it’s just one reason why I prefer tangible over financial assets.

According to a recent excerpt posted on from “The Money Bubble” by James Turk and John Rubino, “Wealth comes in many forms, but only two general categories: tangible and financial. Tangible wealth is made up of real, physical things like buildings, farmland, oil wells, commodities, etc. These things can be seen and touched, and – crucially – they don’t have counterparty risk. That is, no one else has to make good on a promise for a tangible asset to have value.”

The excerpt goes on to note, “Financial assets like bank deposits, insurance policies, bonds, and annuities do have counterparty risk, which is to say they depend on someone else’s promise. A bank deposit, for instance, only has value if the bank is willing and able to produce that money when the account holder requests it. And a piece of paper currency is only valuable if the government manages the money supply properly.”

While I find that in many cases, a broad diversification of assets is the best route to go, here are some of the other reasons why I prefer tangible over financial assets.

Broader diversification
I’ll admit, having financial assets is almost a necessity in any portfolio these days.  Most people with an eye toward their retirement future will likely have a 401(k), IRA, 403(b), Roth IRA, individual stocks, or similar stock-based plan.  However, to me, these are all loaves in the same breadbasket…the stock market.

Tangible assets can open up a variety of investing options – land and real estate, physical commodities, precious gems, antiques, collectibles, and more – that can add diversification to an investment portfolio.

A hedge against uncertainty
And what if the stock market were to crash suddenly and/or our financial system no longer functioned as it has for decades?  What if all those paper assets were suddenly worthless?  What if all those blips and figures on a computer screen or paper statement printout were meaningless?  All you might have left are things like land, a home, precious metals, and other useable or exchangeable tangible assets that suddenly might mean much more than any amount of money in a stock market fund.

Life sustainability
With such assets available, you could find that they are much more life sustaining in an uncertain environment than loads of cash or a million dollars worth of stock.  Being able to harness the power of land – cut trees for fuel, grow produce, raise livestock, hunt and fish for food – could prove to be a real lifesaver…literally.

So while those who promote such assets might sometimes take hard knocks as being the overly-conservative prepper types, tangible assets may protect against a variety of financial occurrences, add diversity to an investment portfolio, and help hedge against uncertainty.


The author is not a licensed financial professional.  This article is for informational purposes only and does not constitute advice of any kind.  Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.

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