The US dollar has lost ninety-seven percent of its value since the formation of the Federal Reserve. Those who have invested in tangible assets have protected their purchasing power over the years. However, intangible assets are more common among investors today, such as stocks and bonds. Investors who were prudent enough to get back in the stock market after the 2007-2008 Housing Crisis enjoyed spectacular returns. With the US economy growing modestly and inflation picking up, the Federal Reserve has been finally picking up its speed on interest rate hikes. Bond and stock prices will likely remain under pressure until the Federal Reserve ends their rate hike cycle. Now is the time for investors to start allocating capital in the very best investments that have stood the test of time in periods of uncertainty and inflation.
Hard Assets Offer Diversification
Typical examples of hard assets include real estate, precious metals, art and rare collectibles. These assets can at times move in the opposite direction of the stock market and can diminish your exposure to the equity and bond markets. Diversification into real assets would be an extremely wise thing for investors to do currently, especially with extremely high stock valuations and the recent volatility in the markets.
Supporters of hard assets believe that having tangible assets is the perfect hedge against inflation. In the past one-hundred years the value of an ounce of gold has increased three-hundred percent if adjusted for inflation and ninety seven percent decline in the purchasing power of the dollar. Gold has never been valued at zero and has been used as a medium of exchange for several thousand years. In the recent hyperinflation crisis going on in Venezuela, the purchasing power is almost nonexistent. However, an ounce of silver in Venezuela can buy several months of food and those who had precious metals have not gone hungry. Most of us in the United States are complacent and believe this scenario could never happen to us bur investors should look at hard assets as a form of insurance against inflation.
Possible Tax Incentives
For investors who see real estate as an ultimate tangible asset, they enjoy tax benefits that save them money and help them to increase their overall net worth. A teal estate investor can receive tax deductions on paying property duties, interest on mortgage payments, insurance and depreciation and the residual income they may be receiving in their investment properties.
Hard assets can have an emotional benefit. An investor may purchase a rare collectible or some fine art because they value its exhibition in their home as well as the possible price appreciation. Buying a house may be a long-term investment, but the house also serves purposes for you and your family and helps to create lasting memories.
Intangible assets like stocks and bonds have helped investors achieve good returns over the long term. However, with market uncertainty at peak levels and a rising interest rate environment, it is probably the right time for investors to allocate funds into hard assets for extra diversification, an inflation hedge, tax incentives and utility.