Real Assets

A real asset is a physical, tangible asset whose value comes from its substance and properties. Examples include real estate, land, machinery, and commodities such as gold, oil, and agricultural products. Real assets contrast with intangible assets (patents, trademarks, brand value) and financial assets (stocks, bonds, cash), which derive value from contractual claims or legal rights.

Key takeaways

• Real assets are physical and have intrinsic value tied to their physical properties.
• Financial assets derive value from contractual claims and can be backed by real assets.
• Real assets often act as an inflation hedge and diversify portfolios but tend to be less liquid and incur storage or carrying costs.

Examples of real assets

• Real estate (residential, commercial, land)
• Natural resources and commodities (precious metals, oil, timber)
• Infrastructure and equipment (factories, machinery, vehicles)
• Farmland and timberland

Real vs. financial vs. intangible assets

• Intangible assets: Nonphysical rights or value—patents, copyrights, trademarks, goodwill.
• Financial assets: Claims or contractual rights—stocks, bonds, ETFs, REITs, cash. These may represent or be backed by real assets but remain securities.
• Real assets: Physical property with inherent use or value.

Overlap and confusion can arise when financial instruments track or hold real assets. For example, a physically backed ETF that stores gold is itself a financial asset; the bullion it holds is the underlying real asset.

Special considerations

• Tax and accounting: Some tax systems and accounting frameworks group real and financial assets as “tangible” for certain reporting purposes, while intangibles are treated differently.
• Ownership mix: Businesses commonly hold a mix—physical equipment and property (real), securities or cash (financial), and brand or IP (intangible).
• Valuation: Real assets can be harder to value quickly and may require appraisals or assessments of physical condition and location.

Advantages and disadvantages

Pros
* Portfolio diversification—low correlation with some financial assets.
Inflation hedge—tend to preserve purchasing power during inflationary periods.
Potential income—rental income from property or yield from productive assets.

Cons
* Lower liquidity—longer sale timelines and fewer buyers.
Higher transaction and carrying costs—storage, insurance, maintenance, transport, and transaction fees.
Valuation complexity—prices can be influenced by local conditions, usage, or physical deterioration.

When to consider real assets

• To hedge inflation or currency risk.
• To diversify a portfolio beyond equities and bonds.
• For long-term investors comfortable with lower liquidity and higher management costs.
• When seeking tangible income streams (e.g., rental property, operating assets).

Conclusion

Real assets are a distinct asset class defined by their physical nature and intrinsic value. They complement financial and intangible assets by offering diversification and inflation protection but require trade-offs in liquidity, storage, and valuation. Consider suitability based on investment horizon, risk tolerance, and the costs of ownership.