Because different types of investments behave differently in an adverse economic environment, diversification is an important investing strategy, particularly when conditions are uncertain. Without proper diversification in a portfolio, an investor can get caught in a trap, if the economy moves in an unexpected direction and catches them off-guard.
Hard assets – such as precious gemstones or metals and even investing in shipping containers, are especially useful in this regard, since they have historically not demonstrated a close correlation with many of the world’s traditional financial assets. In the mind of many investors, this makes them the perfect investment holding. They provide balance and add strength to an existing portfolio of stocks, bonds and cash. With that being said, here are 3 compelling reasons to include hard assets, especially when diversifying an investment portfolio:
- Dividend Income. This is an economic environment where it is not easy for investors to get good yields. That said, hard assets have demonstrated that they can consistently provide a great investment experience and reasonable returns.
- Diversification. Hard assets demonstrate low correlation to other asset classes and thus provide excellent security.
- Preserve Value. Hard assets are a deflation hedge and if investors experience a recession over the medium to long-term, which analysts predict is likely, hard assets can provide a hedge against recession; and preserve the principle value.
Just as hard assets are a welcome alternative to common investments and the key to effectively diversify/strengthening an investment portfolio, it is just as important for investors to exercise proper diversification strategies, within their hard asset holdings. This is recommended because different classes of hard assets, will provide a different set of benefits for investors, in different stages of an adverse or favorable economic cycle.