One of the common steps many people resolve to take after amassing a chunk of money or wealth is to invest in tangible assets. The fact that lots of people seem to be going down the same path makes it worthy of study.
What are tangible assets? Why is it a very common path of investment among lots of people? Are there really no risks involved, and what steps should I take to invest in tangible assets and make huge profits?
A tangible asset is one that has a monetary value as well as a physical form in most cases. Although the liquidity of different markets varies, tangible assets can almost always be traded for money. Intangible assets, on the other hand, have a theorized value rather than a transactional exchange value.
Continuously, tangible assets are also known as “alternative assets” or “physical assets.” The majority of investors who invest in tangible assets do so to diversify their portfolios and protect themselves against inflation.
Characteristics of Tangible Assets
Some major characteristics of tangible assets are;
- They come in physical form, which allows them to be seen, felt, or touched.
- They gradually depreciate over time.
- They have scrap or residual value.
- They can be used as collateral for loans.
- They are used in the day-to-day operations of the company.
Types of Tangible Assets
Tangible assets can be either current or long-term.
Current assets might or might not have an on-site physical presence, however they’ll have a finite transaction value.
Fixed or Long Term Assets
Long-term assets, also known as fixed assets, make up the balance sheet’s second asset section. These long-term assets have less liquidity and are frequently more capital-intensive in nature. Long-term assets are typically larger-sized tangible assets.
Tangible assets are recorded on the balance sheet at the cost of acquisition. Depreciation lowers the value of long-term tangible assets over time. Depreciation is a noncash balance sheet notation that reduces the value of assets by a predetermined amount over time. Within one year, current assets are converted to cash.
Examples of Tangible Assets
Here are some examples of tangible assets;
Land is a tangible asset despite how it is intended to be used. This is true whether the land is being held for speculation, future redevelopment, or long-term plans are unknown.
This also applies to all types of land; whether rural or urban, physical land is a tangible asset. Therefore, this runs counter to the emerging digital plots of ownership in metaverse platforms. Digital land is not a tangible asset because the section of real estate cannot be touched.
When you look around an office, almost everything you see is a tangible asset. Almost every aspect of a workplace can be touched and interacted with, whether it’s desks, cubicles, computer setups, office furniture for visitors, meeting room components, supplies, or other furnishings.
It can be referred to as tangible if you can physically touch it. Therefore, many types of inventory are considered tangible assets. Keep in mind that very similar products may have distinct characteristics. For instance, a CD from your favorite artist could be considered physical inventory, whereas digital mp3 files of the same songs are intangible.
When considering a manufacturing company, all heavy equipment used to process inventory items is considered a tangible asset. This includes any part of the production line with which employees physically interact during preparation, manufacturing, assembly, or quality control.
Physical structures are frequently the most visible and largest type of tangible asset. Offices, warehouses, manufacturing plants, and other types of commercial real estate may be included. Whether a company has shifted to remote work or not, any existing office (even if not in use) is a tangible asset. Building improvements are frequently tangible assets as well.
Difference Between Tangible and Intangible Assets
The distinction between tangible and intangible assets may appear straightforward: if you can touch it, it’s tangible; if you can’t, it’s not. However, in an age when apps and influence can be worth more than spark plugs or apples, the distinction isn’t always so clear.
Here are the major differences between the both of them:
|Tangible Assets||Intangible Assets|
|Can be touched||Cannot be touched physically|
|It is easy to sell||It has perceivable value|
|Because of the clearly defined cost and expected lifespan, it is easier to value and account for.||Intangible assets include goodwill and intellectual property.|
|They depreciate||These assets can be amortized|
|They have residual value||They have no residual value|
|Most tangible assets can be destroyed by flood or fire . Therefore, they need general business or liability insurance.||These can be very compelling long-term investments|
|They can be destroyed by bad decisions and they may need specialized insurance|
How Tangible Assets are Valued
Many people wonder how this tangible assets are valued and how this value changes over time. Here are several methods used to value tangible asset investments;
Cost of Replacement
You can consider the value of some items in terms of replacement cost. For example, if you use a specific type of office equipment, you can estimate its value by researching how much it would cost to replace each item with the same model.
However, if the equipment model you require is no longer in production, you may be forced to use a more recent model as a model for your replacement cost calculation.
Many types of tangible assets require a specific appraisal to determine their exact value. This is especially true for collectibles and antiques, which must have their authenticity verified before an exact appraisal can be performed.
The term “appraisal” is a professional estimate of the value of something. If you’ve ever purchased a home, you’re already familiar with the appraisal process. During an appraisal, an expert in your tangible asset’s industry will examine its condition and assign a value to the item based on their experience. Therefore, depending on the assets you own, you may need to get a new appraisal every year to stay current.
Price of Liquidation
You can also estimate the value of your tangible assets by looking up the liquidation price. Raw materials, furnishings, and inventory typically depreciate over time, so the liquidation price can fluctuate frequently and dramatically depending on market conditions.
Pros and Cons of Tangible Assets
- Because of the consistent underlying use, it may be a more stable investment.
- If rented out for use, it may generate cashflow.
- Due to differences in the underlying asset profile, there may be a low correlation to other asset classes.
- It frequently has real-world applications, which increases its value.
- Physical damage is possible; natural or intentional human destruction.
- Extra costs are frequently incurred in order to store, manage, and protect goods.
- If more advanced tangible assets are introduced, they may become obsolete.
- Because of the potential for easier access, they may be more vulnerable to theft.
Why Invest in Tangible Assets?
Tangibles or alternative investments include items such as property, gold bullion, art, antiques, wine and other collectibles like watches, cars or jewelry. They offer protection from inflation, lower entry points, and potential for huge returns. Also, non-traditional investments have great tax benefits, such as no tax on wine, cars and stamps.
Tips on Investing in Tangible Assets
If you believe investing in tangible assets is the next step for you. Here are some tips offered by experts to help you invest safely;
Purchase it Because You Love it and Can Afford it
The most important idea is to purchase something you love and can afford to keep, not something with a long-term positive return on investment.
Understand Your Asset
Don’t buy until you are well-versed on the asset and have a passion for it. By enlisting the assistance of a property insurance broker and researching online forums and auction houses, you can avoid fad collectibles and stay up to date on news and information about your investment class or items.
Safeguard Your Investment
Ask for as much documentation as possible from sellers to keep an item’s value, and make sure to take care of it and insure it properly.
Buy From a Reputable Dealer or Advisor
A reputable auction house can be a great resource, but it is important to enlist the help of a reliable advisor or dealer. Therefore, an art advisor can help advise on what to buy, while an auction house professional will advise on and orchestrate the transaction.
Investigate the Market and The Actual Cost of Making the Investment
Because their value is determined by appraisal and not priced in any public market, they are often difficult to turn to cash. However, selling them through a broker or auction house can be tax efficient, but only at capital gains rather than ordinary income tax rates.
Tangible Investment Platforms
Once you’ve decided to include tangible assets in your investment portfolio, you’ll need to decide how to invest. However, investing in alternative assets does not always require a trip to the jewelry store or real estate office. The platforms listed below make it simple to invest in tangible assets from the comfort of your own home.
- Lear Capital – For Retirees Requiring Security Against Market Crashes
- APM – For Gold IRA
- Vino Vest – For Bottles of Wine investments
- Ace trader – For Farm investments
It is still very advisable that you seek financial advice before making any investment decisions. As you can see above, making investments in tangible assets has its own advantages and shortcomings. Making very good and calculated decisions will help you avoid falling into the pit of its disadvantages. Therefore, seeking financial advice is very necessary.