Thursday, 6 December 2012

There Has Been a Strong Move by Investors Toward Hard Assets

After witnessing two decades of managed disinflation in the United States' economy, I think we are seeing a cyclical pendulum swing and a rebirth of inflation, which is being supported by a strong move by investors; toward hard assets. As of late, investors have been consciously introducing them to their portfolios, not merely collecting them for additional income opportunities. Furthermore, in some instances, investors are even being encouraged to do so by financial advisers, who traditionally might have placed less emphasis; on these alternative investments.

One of the most appealing aspects of physical assets, lies in the correlation, or lack thereof; to traditional asset classes like stocks and bonds. Numerous academic studies have shown that hard assets exhibit low correlation to equities and fixed income, meaning that when added to traditional stock-and-bond portfolios, this asset class has the potential to lower overall risk; as well as provide a viable alternative to common investments and traditional investing strategies. Currently, Central Banks in emerging markets are investing in gemstones and becoming net buyers of gold, which clearly demonstrates that they understand the implications; that are associated with holding too much in fiat currency reserves. Suppose you were a commercial bank, would you be eager to hold U.S. treasuries or gold bouillon  for the purposes of maintaining your own bank reserves? With that being said, the most likely outcome will be an increase in demand from commercial banks, for many types of hard assets; like precious gems and metals.

For those not interested in speculating on short-term swings, the appeal of hard assets lies in the ability of this asset class to both smooth overall portfolio volatility, as well as; preserve investment principle against rising inflation and other undesirable economic environments. The introduction of non-correlated hard assets to an investment portfolio, has the effect of smoothing the overall volatility of market performance, since the individual components are unlikely to move in the same direction; at the same time. Of course for some investors, smoothing volatility at the expense of overall returns, may be a far less desirable outcome.


  1. The continuing rise of more emerging markets in the world are contributing greatly to the new economic era of the 21st century where wealth will be better spread and prosperity will have a legitimate opportunity to reign in all regions of the world. This provides many good investment opportunities, particularly with hard-assets, that are essential to the growth of the global economy.

  2. Hard-asset investments are gaining in popularity these days because they have demonstrated they can deliver positive returns even during negative global market conditions as experienced in the last five years.

  3. It makes sense to invest in hard-assets. Many are not directly tied to the highly unstable stock markets, decreasing the risk factor, while at the same time, they are essential to the growth of the global economy, increasing their odds of positive returns.

  4. Many investors now include hard-assets in their portfolios to guard against the unreliable returns of many of the traditional strategies that have failed to deliver profits in recent years.