While fixed assets — tangible assets that companies own for more than a year — are most commonly associated with businesses, individuals sometimes add them to their portfolios as well.
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Fixed assets can provide a safe haven for cash during a recession, like the kind that many analysts expect to arrive later this year or in early 2024. They can be tangible, like land or machinery, or intangible, like patents and trademarks.
Either way, investing in fixed assets can be tricky and might require the help of an advisor. But if you’re looking for a safe harbor for your cash, you might consider fixed assets as a shelter, whether you’re a business owner or an individual seeking to expand your portfolio.
Diversification — spreading your eggs among multiple baskets — is one of the bedrock principles of investing. If you wouldn’t put all your money into one stock, then don’t bet it all on one kind of fixed asset, either.
“I recommend a diversified approach to fixed asset investments, including real estate, machinery, equipment and infrastructure,” said Dennis Shirshikov, head of growth for real estate investing site Awning.com and a finance, economics and accounting professor at City University of New York.
“Each of these fixed assets has its own advantages and can complement each other in a well-rounded investment portfolio, Shirshikov said. “Real estate is a popular choice for its tangible nature and potential for capital appreciation, while machinery and equipment are crucial for various industries, enabling businesses to generate income and stay competitive.
“Infrastructure such as utilities, transportation and telecommunications plays a vital role in the economy and can offer steady income streams through user fees and government contracts.”
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Shirshikov elaborated on how the most common types of fixed assets can offer security in uncertain times.
“Rental income generated from real estate investments can offer a stable source of cash flow, even during economic downturns,” he said. “While property values might fluctuate, people will always need places to live and work, ensuring that rental demand remains relatively stable.”
“Industries that rely on machinery and equipment, such as manufacturing and construction, often experience less volatility during economic downturns,” Shirshikov said. “These assets can continue generating income for businesses, as companies need to maintain their operations and invest in upgrades to remain competitive.”
“Infrastructure investments are typically long term in nature and backed by government contracts or user fees, providing a consistent revenue stream,” Shirshikov said. “As essential services, they often experience less sensitivity to economic fluctuations, making them a reliable source of income during downturns. By diversifying investments across these fixed assets, investors can reduce their overall risk exposure and ensure a more stable income stream in times of economic uncertainty.”
Shirshikov mentioned rental income as a benefit of real estate as a fixed asset, but more people find themselves in between landlords when times are tough — and that opens the door for an opportunity.
“The most recession-proof real estate investment that I’m aware of is self-storage facilities,” said Brian Davis, real estate investor and founder of real estate investment site SparkRental. “When a recession hits, many people downsize both their homes and their businesses. That leaves them without enough room for their belongings, and rather than part with them, some homeowners and business owners rent storage space until they can expand again.”
Davis suggested self-storage REITs as the easiest way to invest but warned that they correlate with the stock market and can therefore drop in price even when the underlying real estate asset hasn’t lost value.
“If that bothers you, consider investing in self-storage facilities through a real estate syndication instead,” he said. “Or, of course, you could go out and buy a self-storage facility yourself, but that takes a lot more money and work.”
Although the right fixed assets can provide shelter in a storm, remember that they’re alternative investments, not FDIC insurance.
“I hesitate to use the words ‘safe’ and ‘investment’ at the same time because it can be easily misunderstood,” said Brian Walsh, CFP at SoFi. “Alternative investments like real estate, collectibles, commodities, etc., can help investors further diversify their portfolios and potentially provide income or hedge against inflation. It is important to keep in mind that alternatives should make up a small portion of someone’s portfolio, which I believe is less than 5% to 10% depending on their comfort with risk and other goals.”
Also, alternative assets come with considerations that an ETF does not.
“As you explore ways to add exposure to alternative investments, it is important to understand the minimum investments, liquidity restrictions and fees associated with each investment,” Walsh said. “Some alternatives, like collectibles, may be less liquid than traditional investments, while others, like real estate, may come with higher fees.”
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This article originally appeared on GOBankingRates.com: Experts: Fixed Asset Investments Where It Pays To Put Your Money Safely
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