What Are The Hard Assets?
A good investor always knows where money goes and where to invest it. And that is an essential quality, especially nowadays when economy is so sensitive and unpredictable. The crisis that struck worldwide proved that in order to be successful in business you must make safe investments and follow attentively the market tendencies. The causes which led to the recent recession must also be studied and taken into account, lest they should occur again and cause even more devastating effects.
One of the most debated causes of the crisis is inflation and its fluctuating levels have marked the financial history of many states. They led to the Great Depression, to Ireland’s temporary decline and continue to affect numerous developing countries. Inflation occurs when the level of prices rises over a general period of time. Which makes that each unit of currency can buy less, and further on, the purchase power of money erodes. The effects are also psychological: most investors are discouraged to invest their money because of the uncertainty over the future.
What analysts and economists encourage, and what really happens when inflation occurs, is to invest money in tangible assets, also known as hard assets. As the name says, this kind of assets are actually investments which hold an intrinsic value, like gold, oil, stamps, art, forestry, mines, diamonds or natural gas, for example. What makes them a hedge against inflation is the fact that they keep their value and even appreciate regardless of the fact that prices rise and the purchasing power of money drops.
The stocks of hard assets don’t decline with the overall bond markets, but their value tends to increase. As for the cost of hard assets, it represents the actual price paid for the purchase, before it is put into exploitation. The cost will not suffer any changes and it will remain the same, but the value differs at each moment and is more difficult to calculate or define. Some factors must however be taken into account, like the depreciation rate of the asset in time. You must also be patient with hard assets, for sometimes these stocks may lose money, especially when bonds are gaining value, but normally they will appreciate again after periods of inflation, when dividends are reinvested. They also maintain their buying power.
From an empirical point of view, gold is one of the most famous hard assets people nowadays invest in. Whether it is gold bullion, or gold mines, the majority of investors turn towards this commodity because it is known to maintain its value over time. It also maintains its buying power, and its popularity is reflected in the total assets available in gold. Safe, stable and always valuable, gold will continue to be a better investment in times of recession, when inflation is a serious issue.