Have you ever wondered how to put your money into something that keeps its value, or even gains in value over time? Fiat currencies such as the dollar, the pound and the euro are exposed to inflation and lose value as the years go by. Inflation is a serious problem that every investor looking for opportunities has to take into account, because the erosion of money can cut the purchasing power of a portfolio considerably. One way to soften the effect of inflation is to invest in real assets. Unlike traditional savings, they offer the chance of returns above the rate of inflation. So which real assets are best suited to protecting your wealth? Is it property or precious metals? Or perhaps coloured gemstones or art? Below we look at which real assets offer the best protection against inflation and which forms deserve a place when you set out to preserve your wealth.
What are real assets?
Real assets are assets with a material, physical value. They actually exist, unlike financial assets such as shares or bonds, which exist only on paper or in an account. Real assets as an investment have grown steadily in importance in recent years. In times of uncertain stock markets, low interest rates and inflation in particular, they can be an attractive alternative. They give investors security, stability and substance in a portfolio, they hold up well in a crisis and, ideally, they preserve their value over a long period. As an investor, however, you should inform yourself thoroughly and examine the different ways of holding real assets closely if you want to act successfully in the market.
1. Precious metals
Gold and silver have long been regarded as the best ways of storing wealth in physical form. They are real, they are limited, and demand for them is very high worldwide. Gold and silver have kept their purchasing power throughout history and can also serve as a hedge against inflation. These metals have the advantage of holding their value over time and offering protection against inflation.
2. Ammunition and firearms
Ammunition and firearms are products that have been used for defence and hunting for centuries. They are useful and in demand, because wars, political unrest and natural disasters mean that people always need emergency supplies. Because demand keeps rising, the loss of value on these assets is close to zero. On the contrary, ammunition and firearms gain value over time. Bear in mind, however, that licensing and ownership rules must be observed, and in the UK and most of Europe these rules are tight. An investment in ammunition and firearms is therefore not for everyone.
3. Farmland
Farmland is considered one of the safest investments on this list. The amount of land on earth is limited and steadily shrinking. Demand for food, on the other hand, keeps rising, which can make farmland a valuable asset. An investment in farmland does carry some risks, however, such as extreme weather and political instability.
4. Collectibles
Collectibles such as stamps, coins, paintings, watches or works of art can become very valuable when their worth rises because of their rarity and their appeal to collectors. Their value can fluctuate, however, and so it is not always reliable. Collectibles are best left to people with a strong interest in and real knowledge of the field.
Watches
Watches from makers such as Rolex and Patek Philippe are known for their high quality and craftsmanship. They can also be a good investment, as demand and prices can rise over the years. It is important to remember, though, that anyone investing in a watch has to research carefully and handle the sale actively when the time comes.
Coins
Coins, especially rare ones, can be used as an investment. The value of collector coins is often far higher than the value of the metal alone. The drawback with coins is that forgeries are easy to produce. That is why it matters to consult a coin specialist to confirm that a piece is genuine.
Art
Art is another investment whose value can swing widely. Paintings and sculptures can be very valuable and fetch high prices when they come from a well-known artist. Investing in art, however, often calls for substantial funds and expert knowledge.
5. Coloured gemstones
If stability of value is what you are looking for, you will find it not only in gold and silver but also in coloured gemstones. Unlike shares or funds, they are not subject to sharp swings in value, and they have proved themselves in times of crisis (the Covid crisis, for example). They also offer maximum mobility and a high degree of privacy. Privacy is not a tax exemption, though: a gain on a sale stays taxable in the country where you are resident. A further advantage is their broad protection against inflation. Coloured gemstones can be kept safely at home, which makes storage simple. Anyone aiming for broad diversification in a portfolio should consider coloured gemstones as an addition.
6. Whisky
In recent years whisky, alongside wine, has caught the attention of investors. With good reason: Scotch whisky has an export value of the equivalent of €5.9 billion a year and accounts for 70 % of all Scottish food and drink exports. Anyone wanting to invest in whisky should keep in mind, however, that it is a specialist field and should only ever make up a fraction of your investments. There are two ways to invest in whisky. You can simply buy bottles in the hope of selling them on at a higher price. Or you can buy whisky by the cask. In that case you are investing in the year of distillation, the potential of the distillery and the limited quantity it produces.
7. Rare earths
Investing in rare earths was long controversial because mining them is hardly kind to the environment and the options for recycling them are limited. Yet technology metals and rare earths sit well even in an environmentally minded portfolio. The reason is that rare earths are used in many sustainable technologies, such as wind and solar power, electric vehicles and LED lighting. The growth potential of these technologies promises long-term returns. When investing in rare earths, however, watch out for risks such as political instability and monopolies.
Combining stores of value
Seven alternative ways of investing in real assets and protecting your wealth have been set out above. Each of these options has its own advantages and disadvantages. Before you decide on an investment, research carefully and weigh up the risks. A combination of different stores of value can give you a balanced diversification. With this approach it is possible to build wealth even in uncertain times and to keep it safe.
If you have further questions about protecting your wealth, take a look around Asset Protection Plus. Sebastian Sauerborn will gladly advise you on choosing the right investment, or use our wealth check to assess your situation free of charge.