Saturday, October 3, 2009

Getting Exposure to Real Assets

There are several different ways to get exposure to real assets. This post will be a generalized introduction to the myriad ways that an investor can get exposure to real assets and benefit from the inflation that has become a constant companion of paper currency. Later on as this blog develops, I will discuss specific real assets in detail and ways to invest in those specific assets.

Ways to Get Exposure to Real Assets
  1. Direct ownership. This is the easiest to understand. If you own a piece of real estate outright, then you benefit directly from the increase or decrease in value of that piece of property. Owning a small apartment building, for example, will allow you to rent out the apartments, collect the rents, pay expenses from the cash flow and profit. You will also benefit from any increased value over time. Owning an ounce of gold or silver means that you directly benefit from any increase in the price of gold or silver over time.
  2. Leveraged ownership. This is often a way that investors may benefit from appreciation of an asset over time. However, over leverage can be problematic in times of falling values and depreciation as the recent experience for many in real estate would illustrate. It is important that an investor not use too much leverage. That is a topic for another post.
  3. Partnerships. You may not have enough money to purchase a real asset outright. Another possibility to gain exposure with or without the use of added leverage is by partnering with other investors to invest in a larger asset than you could afford yourself.
  4. Paper control. There are several sub-categories and examples that could fall under this heading. This might include stock in companies with a large collection of real assets such as real estate investment trusts. It could include exchange traded funds, like the gold ETF, GLD. It could include options or futures contracts. The main point is that while you don't directly control or own the particular asset, you can benefit from changes in asset pricing and inflation.

These are just generalized examples of how to gain exposure to real assets that should hold their value over time. This blog is devoted to looking at real assets, gaining exposure to those assets, and benefitting over time from their increased prices while maintain long term purchasing power and lifestyle.

Until next time--Keep it REAL!

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