Non-financial investments are the one that grows in value over time and offers to invest opportunity however in the long term. Non-financial investments could be tangible and intangible.
- Tangible Investments include real assets like land, building, vintage vehicles, etc.
- Intangible investments include patents, intellectual property, financial data, etc.
A financial asset is a liquid asset whose value comes from a contractual claim, whereas a non-financial asset’s value is determined by its physical net worth. Non-financial assets cannot be traded.
Let’s understand some significant Non-financial investments.
Land and Building
Real estate has become a profitable investment mode as land prices increase regularly.
It refers to immovable property such as lands and buildings. Usually, it is a long-term investment. It is an asset form with limited liquidity relative to other investments and could be purchased in many forms. However, a real estate investment could be risky if certain factors are not considered. For example, if an investment in real estate doesn’t generate enough cash flows regularly, or there is no capital appreciation. The investment in such real estate wouldn’t be worthwhile and would need to be sold. In such a scenario, sale proceeds may be lesser than expected and cause a loss.
Real estate property could be an excellent investment but also a poor one. To assess whether the real estate is a reasonable investment, attention should be paid not only to property price changes but also to other important factors like; rent yield, repair costs, depreciation of main constructions, furniture, and other equipment expenses (if the property is rented with all these things), the title of the property, etc.
Most importantly, the value of the real estate would depend on economic and market conditions.
Popular Real Estate Investment Segments
- Residential property (housing),
- Land investment (any purpose),
- Commercial property, like ;
- Retail property.
- Warehouses.
- Offices.
A lot of knowledge and diligence are required to invest in land. Investing in land is generally riskier than investment in buildings. There are more segments of real property, e.g., industrial property, but these are not popular investments.
Investment in real estate is possible directly in the property and through real estate development companies or REITs (real estate investment trusts).
Collectibles
Collectables include coins, antiques, and works of art. In the long term, it might give high rates of return and have some tax advantages. But the person investing in them should know the market well. Artworks and antiques couldn’t be resold for an enormous profit quickly. Therefore, one should have the patience to wait until its value increases. The storage, maintenance, and transportation costs should also be considered. The main reason for any investment of this nature is, of course, aesthetics.
Gold
Among all metals, gold is the most popular form of investment. Gold is in demand, even if it is ancient or a broken piece of jewelry. If you are buying gold for investment, it is always better to buy gold coins and bars. Unlike other investments, investment in gold does not rely on someone else. Gold won’t get much affected by inflation because during inflation value of gold increases faster than the inflation rate. Further, gold couldn’t be reproduced artificially, so the value of gold keeps increasing consistently. This is why people prefer gold as the safest form of investment.
Wine
The demand for fine and rare wines is increasing, and so is its chance of becoming a better investment product. You can invest in a particular wine producer or vineyard, or you can invest in the actual wine itself. Disadvantages are that you won’t be able to convert your asset quickly into cash. Also, since it requires physical storage, proper care should be given; otherwise, it may get damaged and spoiled.
Forestry
Forestry investment is risk-free, and it provides competitive returns. For investors looking for long-term investment, timberland investing is a good option. You can invest directly as well as indirectly in forestry. In indirect investing, you need to buy shares from a forestry investment company, whereas direct investment involves purchasing and owning the land. But one needs to be extremely careful regarding the risks involved like fire, storm, insects, etc.
Conclusion: Non-Financial investments for High-Risk Profile Investors
In recent years private customers have shown a growing interest in investing in non-financial assets such as physical gold, real estate properties, artworks, diamonds, and antique wine.
Non-financial investments are choices of investments for those who have the patience to continue their investments for an extended period and understand their valuation. Opportunity in non-financial investments requires more investments that could be suitable to high net worth investors. Nonfinancial investments could be added to an investment portfolio considering their high-risk high return feature.
