Investing in tangible assets Your 2023 tangible assets investment guide

Investing in tangible assets: your investment options, opportunities and risks at a glance.

Gold, real estate and so on: tangible assets have been popular with investors for ages and have a firm place in many well-structured portfolios. Tangible assets are primarily used for diversification and value preservation, but some can also form part of high-risk speculation. 

Investments in tangible assets pay off, especially when interest rates are low. Many are stable in value and are regarded as a crisis-resistant alternative for parking or permanently investing money. 

But how crisis-resistant are they really? What opportunities do investors have when investing in tangible assets? What risks and disadvantages should be taken into account? This much is clear: you should not do without careful planning, broad risk diversification and the careful selection of a suitable investment. 

This guide will provide the most important information that will help you to orient yourself in the world of tangible assets.

Tangible assets are assets that have real, physical substance. They have a concrete, material value, such as land or works of art. This means that tangible assets are independent of monetary values and offer protection against asset loss in the event of inflation. 

The number and variety of tangible assets is almost endless. In addition to traditional categories such as real estate or land, precious metals such as gold or silver are also particularly popular. Watches, special raw materials, automobiles or rare wines are also traded as tangible assets. 

What you should be aware of: the more exotic the tangible asset, the smaller and less accessible the corresponding market can be. Whereas, for example, the real estate or precious metals market is internationally positioned and offers opportunities to buy and sell at virtually any time, trading in special works of art or classic cars is more limited.

Therefore, make sure that you are able to sell your respective tangible asset again, if necessary, without incurring significant losses. 

Like any financial investment, tangible assets cannot offer their investors complete protection against the loss of their assets. However, due to the real and measurable equivalent value, a complete loss in value is extremely unlikely when investing in tangible assets.

The popularity of tangible assets is rising sharply, especially in times of inflation and crisis or in periods of low interest rates. With a low key interest rate, you can often expect significantly better returns from tangible assets than from traditional investment forms such as savings books or fixed-term deposits. As tangible assets are also not dependent on monetary value, they protect your assets in times of high inflation.

In principle, tangible assets are considered crisis-proof: anyone who has their own roof above their head or has invested in gold is well protected against a total loss of their assets.

However, to benefit from the characteristics of tangible assets, you should not wait for the next crisis to get your investment started. On the contrary, for a successful tangible asset investment, it is worth thinking ahead and adding the durability and value stability of tangible assets to your portfolio as early as possible.

So when is the right time to invest in tangible assets? The short answer is always. Tangible assets in one form or another are almost indispensable for a successful and broadly diversified portfolio.

In particular real estate investments, for example in the form of real estate funds, offer a stable and low-risk basis for your portfolio.

However, renewable energies are also gaining ground and offer you the stability of real tangible assets, while at the same time expanding your portfolio meaningfully. Investments in renewable energies are currently underrepresented in most portfolios and therefore serve as a future-oriented addition.

If you invest in tangible assets at an early stage, you will normally benefit from solid returns, but at the same time have the opportunity – whether politically or economically – to cushion adverse effects with your investment in times of crisis.

More investments in pure monetary assets are more suitable if the key interest rate is particularly high. Pure monetary investments are subject to high interest rates during these times, which means bigger profits for investors. 

In turn, investments in tangible assets are particularly worthwhile for a long investment period, during which the advantages and strengths of tangible assets can best come to bear. 

However, in order to protect your investment well and to spread the associated risks as widely as possible, a combination of monetary and tangible assets is worthwhile.

Tangible assets give the value of your portfolio stability and help to preserve your assets – even in a crisis.

Fluctuations in value are also significantly lower than for equities that depend on stock market sentiment – this certainty is worth a lot to many investors. Even far-reaching currency or state crises do not directly mean the end – many tangible asset investments can easily withstand such collapses.

The situation is different for monetary assets and government bonds: in a worst-case scenario, an entire asset can lose its value overnight – as has been frequently observed in times of hyperinflation. Assets such as cash, bank balances or bonds are among the nominal values whose monetary value is fixed.

For example, when a bond is issued, the amount of the annual interest rate and also the redemption price are determined.

Tangible assets, on the other hand, offer good protection for your investment in economically turbulent times. For this reason, tangible asset investments such as in production plants for renewable energies or real estate in a good location are also popular with institutional investors. Until recently, retail investors did not even have the opportunity to invest in asset classes such as renewable energy or infrastructure – they have only recently been able to benefit equally from investments in these tangible assets.

But, tangible assets also carry certain risks. For example, the prime location of a new residential building in which you have invested can depreciate greatly if a new motorway is built there a few years later. Or the purchase of a work of art that turns out to be significantly less valuable after the purchase.

However, it’s important to stay realistic. Stable assets are a good investment to balance your portfolio, but they can fluctuate in value.

However, we have a few tips for you on how you can make even better use of the advantages of tangible assets: 

• by investing in tangible assets you have double the benefit. If the fund invests in many investment items at the same time, you can diversify the risks of your investment with just one investment.
• You should only consider investing in individual assets if you have real expertise in a specific area. Then you are also able to assess the purchase price well. Otherwise, it is better to invest in funds that leave the selection to experts.
• The broad diversification in tangible assets itself is also useful: if your portfolio already has assets such as equities, bonds and precious metals, investments in real estate and renewable energies are a good addition.
• In the event of short-term setbacks, it is worth considering countercyclical follow-up purchases. This frequently means that you can re-enter the market at particularly favourable conditions.

Tangible assets can be found where supply meets demand – the investment opportunities for tangible assets are thus virtually unlimited. 

However, many investors specialise in certain groups that have so far proven to be good investment options. These primarily include real estate, renewable energy and precious metals. 

By definition, equities are also tangible assets, because, as an investor, you contribute to the economic assets such as production halls or machinery of the respective companies. At this point, however, we exclude equities because they do not perform the same function in your portfolio as other, more conventional tangible assets, and you don't think of equities first when we talk about tangible asset investments.

Investing in real estate often means many benefits for investors. 

• Real estate is generally regarded as a stable and low-risk investment with solid returns, which benefit from mostly consistent performance. Real estate returns are usually consistent and stable.
• By investing in real estate, a decline in value can be circumvented or compensated for by rising inflation rates. Rising real estate values can balance out the inflation rate as well as the generally rising price level. With rental income tied to the consumer price index and the average price level, inflation compensation can ultimately come into play. 

Many criteria play a role in selecting suitable and promising real estate. Firstly, the financial cushion of the responsible developers and the purchasing power of the target group, and secondly, the location of the real estate and the development of the corresponding region. 

If these criteria cannot be met or can only be met to a limited extent at the time of investment, this may result in certain disadvantages for investors. 

• As real estate is often traded as a long-term investment, performance is not always predictable. If the real estate does not perform as expected, investors may incur losses at the time of sale.
• Fluctuating income can also be a disadvantage here. Payment defaults in the form of vacant real estate or rental debts thus represent a risk. 
• In large cities and metropolitan areas in particular, high and rising real estate prices are to be expected. Anyone wishing to acquire their own property under these conditions must therefore have a lot of capital and/or take out large loans.
• In general, owning your property can be a sensible investment, but it is not for everyone. It takes knowledge, a lot of time and work, and in the end you have a tangible asset, but often, a significant part of your wealth is concentrated in a single property, creating a cluster risk.

Many investors who are aware of these risks therefore make use of diversified investments such as open-end real estate funds. Fund managers are responsible for management and investment. They invest the fund assets in various investment objects that are as broadly diversified as possible.

This also spreads the risks of the individual properties, avoiding cluster risks with investors expecting consistent returns. At the same time, you have access to premium real estate such as office buildings, hotels or shopping centres.

Precious metals such as gold, silver and platinum are regarded as beneficial investments by both connoisseurs and amateurs alike.

• They have a good reputation as crisis-proof investments that can even serve as a transition currency in a worst-case scenario. 
• Precious metals are a limited resource, which further increases their value. At the same time, however, many investors are convinced of the "perpetual" value of these raw materials, which has already been recognised as far back as the times of emperors and Pharaohs. 
• This is reflected in the demand: an increase in the demand for gold can be seen especially when inflation rises. 
• Gold and other precious metals are also quite straightforward to buy. Sales are usually fairly easy as precious metals can generally be sold quickly. The market for ingots and common coins such as the South African Krugerrand is large, international and there are no stumbling blocks such as the right location, equipment or tenants. 

But, their disadvantages should not be forgotten:

• precious metals are a speculative investment that gives you neither interest nor dividends. 
• Also, precious metals are subject to fluctuations. For example, the automotive industry has a real influence on whether the price of platinum is fixed or whether it falls – depending on demand, technological development, etc. 
• In times of crisis, they enjoy the hype, but after that, precious metals often become quieter again – five years after the 2008 financial crisis, for example, gold prices fell by 30%. 
• Another aspect is storage. Unlike real estate, for example, you are at risk of losing your investment due to theft. The material itself must also be maintained and preserved so as not to lose value.

In addition to the traditional ingots and coins that have been the focus here, investors also have the opportunity to invest in certificates and exchange-traded commodities (ETCs). Such certificates are linked in value to the price index of the respective precious metal. ETCs are debt securities that securitise the value of a certain amount. 

However, it is up to you to decide whether these “paper gold” options still represent real tangible asset investments.

Renewable energies such as wind or solar power represent a newer type of tangible asset investment. Investors do not purchase their own wind farms here – these investments are carried out via shareholdings, for example in the form of funds for renewable energies. Again, there are a number of benefits for investors. 

• The renewable energy market is one of the fastest growing markets. More and more investors, but also providers, are recognising the potential, and both demand and supply are currently rising sharply.
• Investments in renewable energies prove themselves not only economically but also environmentally. This will expand an energy market that is future-oriented and thus pave the way for the energy transition.
• Many countries in Europe and around the world have committed to expanding renewable energy supply systems. This will help to better ensure that the relevant markets continue to grow, which in turn will contribute to the stability of investments.
• With renewable energies, you make a significant contribution to the diversification of your portfolio. To date, these investments have been under-represented in most portfolios, but can actively contribute to spreading the risk of your investments. 

At the same time, such a novelty can also have disadvantages. 

• A new market often lacks the necessary experience and expertise. Investors therefore run the risk that the project which meets their requirements will not deliver the desired results and thus cause losses.
• Compared to real estate as an investment, for example, the costs in this segment are slightly higher. For example, the management and operation of the plants are associated with higher expenses. 

But a lot is happening here as well: improved technologies have made it possible to significantly reduce previous costs. That is why it is no longer just environmental reasons that play a role in investing in renewable energies.

It is clear that renewable energies are on the rise and will replace fossil fuels in the long term. As a result, the competitiveness of renewable energies is also constantly increasing.  

This also has consequences for investors. The segment is no longer characterised by steady growth, but also increasingly by consistency. This is because long-term purchase agreements that provide reliable cash flows are usually concluded – such as in the first Finnish wind farm, which has been part of the klimaVest portfolio since June 2021.

Thanks to a ten-year purchase agreement with Google, regular revenues from the wind farm can be reliably guaranteed over this period.

The three categories shown here represent only a small part of the tangible asset segment. Other notable tangible assets include, for example, means of transport such as ships, aircraft or containers, Which are leased to large logistics companies, resulting in a return for investors. 

However, the container market, for example, shows that we are dependent on the global economy here, as is the case with shares on the stock exchange. Due to an immense number of investments, there was an overcapacity of freight vessels and containers on the market for a certain period of time. The oversupply meant that several providers were no longer able to make payments and ultimately had to declare insolvency. 

They are therefore particularly linked to the global economy. As soon as the economy is in crisis, this is felt relatively strongly in the trade in goods.

Investors need a certain level of expertise to ensure that tangible assets can unleash their full potential. This is why you should clarify a few questions for yourself in advance: 

• Do you have enough time to invest both knowledge and capital in a tangible asset class? 
• Can you diversify your capital sufficiently so that you are not just investing your money in a single property – and thus take on a cluster risk? 

If you cannot answer these questions with a clear “yes”, you should look at tangible assets in order to secure your assets. Alternative investment funds (AIFs) include suitable funds that promote a widely diversified portfolio, experts and relatively small investment amounts. 

The benefits that open-end real estate funds have been able to offer retail investors for decades have also recently been applied to other categories. An amendment by the EU in 2015 has ensured that private individuals can now also invest in renewable energy: 

the introduction of the European Long-Term Investment Fund (ELTIF) has been actively promoting more sustainable economic growth for several years. It drives forward the expansion of sustainable infrastructure or green electricity grids, for example. To protect investors and maintain transparency, ELTIFs are subject to strict regulations. 

They close a gap in the market that previously existed between institutional and retail investors in order to promote forward-looking investments together with private individuals. 

When you invest in funds, you invest in different assets – including tangible assets. By distributing the fund assets across various projects, the associated risks can be reduced and the resilience of the investments increased. 

As an investor, you also benefit from their high degree of flexibility, as fund units can be bought and sold at any time. Some tangible assets start with fairly low minimum investment amounts, making this type of investment suitable for many investors. 

On the other hand, it is not uncommon for tangible assets to require higher investment amounts, meaning that in some cases you have to invest 20,000 euros or 50,000 euros in order to participate in the corresponding project. 

Like any other investment, before investing in tangible assets, it is important to consider not only the advantages, but also the specific disadvantages: What compromises do you have to make when investing in tangible assets? Does the minimum term match your investment horizon? Do you have enough tolerance for the most common investment risks? 

In order to take into account all the advantages and disadvantages of your tangible asset investment, we would like to offer you an overview of the most important positive and negative characteristics of tangible asset investments.
 
Perhaps the biggest benefit for inexperienced investors is that for many, an investment in tangible assets is easily accessible and measurable. For example, most people at least know some of the basics of real estate, whether in the form of rental or ownership. 

For many, the risk of owning their own home or a house can therefore be better understood than the investment risks of equities or bonds.  

You also benefit from the real value of tangible assets. When you invest in real estate or wind power, typical risks such as fluctuations in value or total losses can be better absorbed. Especially in times of crisis, tangible assets can stand the test of time and often even increase in value. 

Tangible assets therefore prove to be a meaningful and profitable investment in many respects. However, as an investor, you should also keep the most common risks and disadvantages in mind. 

The aspect of value retention must be mentioned here in particular, because it cannot be guaranteed – even with tangible asset investments. Tangible assets are also subject to losses in value – at least temporarily. These can also arise from exchange rate risks if you enter an international tangible asset market. 

In addition, certain types of tangible assets, such as a condominium, incur certain ancillary costs that you must consider before investing. Such costs can only be recovered over time. 

In order to be able to trade in tangible asset markets skilfully, you should also have a certain level of prior knowledge. Otherwise, investors run the risk of misjudging investments, their price or their quality and making unprofitable investment decisions. 

If you choose to invest in tangible assets, there is also a risk that you may be a victim of theft, damage or natural disasters such as flooding or storms. An insurance policy can protect you from this, but it also means another expense that you need to take into account.

If you want to invest in tangible assets, there are a few aspects that you should consider for a successful investment, depending on the offer. Not all offers are as attractive as they seem at first glance. 

Ask yourself some critical questions: 

• Do you understand the business model and how it works? 
• Are you convinced of the economic performance of the model? 
• If you cannot make this assessment yourself – do you trust the responsible expert?  
• Has the investment, such as a tangible asset, been set up transparently? Are the costs and income evident from the documents? Is it still a fund with a good return? 
• What ancillary costs, maintenance costs, taxes, expenses, etc. will you be charged with this investment? Do you have the means to manage these costs – and still have a cushion? 
• Does your investment contribute to the diversification of your portfolio? Or would you be exposed to a big cluster risk? 
• To what extent does your planned investment contribute to enriching your financial situation? 

With these questions, as well as the information we have provided in this article, you can now get your own differentiated picture of tangible assets as an investment – and decide not whether, but which tangible asset investments will find a place in your portfolio.