TOP 3 REASONS WHY AT LEAST 20% OF EVERY PORTFOLIO SHOULD BE INVESTED IN REAL ASSETS (INSTEAD OF ONLY STOCKS, BONDS & CASH)
With the Dow Jones Industrial Average index having exceeded the 20,000 mark, many investors might be inclined to think that Wall Street’s celebratory mood is just getting started. The truth is, that while crossing the 20,000 milestone sounds incredibly meaningful, in reality it is more significant primarily from a numerology perspective, rather than one which is based on actual analysis.
Investors seem to be encouraged by the recent gains in the equity markets and have firmly fixed their gaze upon Washington DC in the hopes of seeing further gains based on the anticipated implementation of financial and regulatory policies, which are deemed by many to be incredibly business-friendly, and will invariably translate into a potential boon to the economy (or most certainly to the financial sector). In reality, however, the legislative process often tends to move slowly which can cast a pall of great uncertainty over the market.
When it comes to uncertainty, it is a phenomenon which is akin to kryptonite for the stock market and in such an environment, investors would be best-served to put their money into other investments which have the potential to provide them with a safe harbor such as the kind provided by real assets. “Real assets are physical assets that have value due to their substance and properties and include precious metals, commodities, real estate, infrastructure, agricultural land, machinery, and oil, etc”. Typically favored by investors who are concerned about inflation, currency prices, or other macroeconomic factors, real assets are a great hedge against uncertainty and are therefore a superb alternative to the stock market.
Below are three very compelling reasons why we believe that at least 20% of every portfolio should be invested in real assets:
1) Predictable cash flows with more stability: Real estate and other real assets which produce income can serve as a valuable substitute for investors who have historically turned to fixed income instruments as a means of generating cash flow from their investments. With the continuing urbanization trend in major cities throughout the US and world capitals alike, income-generating real estate investments can offer the long-term investor a sound alternative to bonds by allowing them to take advantage of capital appreciation as well as steady cash flows throughout the holding period. In light of the low-yielding returns from Treasury bonds and Euro zone bonds, as well as other instruments, investors worldwide are on the hunt for investments which yield higher cash-on-cash returns without having to increase their risk tolerance. Given the characteristics of real assets, they can offer investors the safe harbor and performance which they are seeking.
2) Less expensive alternative to stocks with greater chance of relative outperformance: In a recent research note providing the firm’s outlook for 2017, the Chief Investment Strategist at Bank of America Merrill Lynch, Michael Hartnett, urged clients to ‘rotate out of stocks and bonds to “real” assets’  with one of the most compelling reasons being that the ‘relative price of all real assets (including commodities), against financial assets, is at its lowest since 1926’. This relatively lower cost makes real assets a very attractive investment alternative as compared with stocks or bonds and one which is well-timed in the view of many professional investment firms such as Credit Suisse and others who believe that US stocks are ‘highly overvalued’.
(Source: https://Deutsche Asset Management fundsus.deutscheam.com/EN/_img/content/accelerating_chart1.jpg)
3) Hedge against inflation: Here in the US as well as in developed nations throughout the world, inflationary pressures seem to be on the rise. Factors such as rising interest rates due to monetary policies being implemented by the Federal Reserve and global central banks, rising food and energy costs, rising wages and slowing global trade are all components of an inflationary environment which will put downward pressure on stocks but which will be advantageous for the real assets investor.
(Source: https://Deutsche Asset Management https://fundsus.deutscheam.com/EN/_img/content/inflation-chart2.jpg)
While it’s true that no one has a crystal ball into the future, the presence of certain market signals should alert the wise and savvy investor that they would be well-served to take notice, not only so that they can mitigate financial risk, but at the same time, to reallocate holdings in their portfolio in order to benefit from the risk factors in the investment realm, especially during periods of great economic uncertainty such as that which currently exists on a worldwide basis.
RealAssets™ is a platform for investing in investment grade real estate. Founded by a team of experienced and proven institutional real estate investors with over 150 years of cumulative high-level investment management and international real estate experience spanning the US, Europe, and India, RealAssets™ allows a diverse array of investors to participate in advantageous and highly sought after investment grade real estate investments which were historically reserved for large institutions, etc. The RealAssets™ platform is secure and intuitive with a user-friendly interface and with sophisticated technological advancements which provide real-time information and tools to investors. www.realassets.com
Suresh Nichani - CEO, RealAssets™ Corporation
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