Stock vs. Stock Piling: Are Tangible Investments Better?

(Guest Post by Kelsey Libert)

When you start to invest beyond having a savings account and a good insurance, you run into a multitude of choices. This is where a lot of people freeze up, and either don’t do anything or just do the first thing that pops into their head. There are literally thousands of stocks, hundreds of mutual funds, and an unbelievable number of bonds. This isn’t even including antiques, stamps, coins, works of art and other types of investments. Every kind has merit, rather like cereal has a place in a balanced breakfast.

One of the major choices every investor has to make is whether they should keep the bulk of their holdings in investments they can physically hold onto or in investments held in accounts. While stock certificates do exist, most people never hold them. Most people don’t keep their jewelry locked in a vault, either. The issue can easily become very complicated, so we’ll keep it fairly general here. What follows is a basic discussion of tangible versus intangible assets. None are perfect, and the best investors have a diverse mix of both kinds.

Intangibles – The Good

Intangible assets such as stocks and bonds can’t be harmed if there is a fire. They also can’t be stolen, considering the protection offered by the SIPC and the fact that brokers are screened almost to the level of doctors. Mutual funds are more tightly regulated than plutonium producers, so your money is unlikely to disappear through shady dealings. While Ponzi schemes draw headlines, no thief breaking into your house can raid your portfolio. That’s why trading commodities online can be one of the safest ways to invest your money.

Another advantage of intangible assets is their extraordinary upside potential. While a stock can go down, it can also go up very, very high.  For instance, $10,000 invested into Berkshire Hathaway in 1961 became $100 million in 2011, despite more than half a dozen recessions.

Intangibles – The Bad

Intangibles often have no intrinsic value. For example, company stock is only worth a percentage of what the company is worth. While one can argue the fundamental merits of valuing a company by its cash flow, sales, etc., the ultimate deciding factor of a stock’s “value” is how much someone else pays for it.  If the market crashes, you may be sitting on a paper fortune that’s all gone up in smoke.

Intangibles – The Ugly

As tightly regulated as they are, there is still the potential for problems within a company. If someone at the top makes a mistake or does something shady, an intangible asset has the potential to lose value. Sometimes forces outside of a company can cause a loss of value such as if an industry becomes unpopular or suffers a scandal. In the 1980s, one company had someone tamper with a few bottles of its medicines. The entire industry took a significant hit. With paper assets, life is a popularity contest.

Tangible Holdings – The Good

Tangible holdings are great when there’s a natural catastrophe, a civil insurrection or when zombies rise from the grave–otherwise known as really, really bad times. With tangible holdings, you have some guarantee of value regardless of what someone else will pay for what you own. An original Picasso will be as beautiful valued at $5 million as it would if no one would pay five dollars for it.

Gold is useful in a variety of industrial applications, and can actually be used as a play-dough if you love spoiling your children rotten. If you know how to alloy metals, it can even be used to make your own fillings. Just be sure to practice that before trying it in another living person’s mouth.

Tangible Holdings – The Bad

Tangible holdings can literally be held, but only if they’re in your physical possession. Simply having gold, silver, oil or any other tangible holding “somewhere” doesn’t help you in the slightest. Unless you have them in hand, during a truly dire situation, you will not practically be able to gain access to them, which makes them next to useless. If you happen to be in a time and place experiencing a revolution, your distant holdings are as good as gone.

In addition to the need to keep them close, another downside to tangible assets is that they pay you nothing. While stocks can pay dividends and bonds pay interest, a lump of gold will never pay you anything unless you sell it. As any child could tell you, when you sell something you no longer own it, so you only get one chance to make a profit.

Returning once more to truly dire theoretical situations, tangible assets will only do you good if you know how to use them properly. If you have gold but do not know that it can be used for a wide variety of purposes, it’s just a shiny toy to you. Holdings without knowledge are like wings without air.

Tangible Holdings – The Ugly

During a truly dire situation, when having a large amount of gold bullion and antiques to barter for food and ammunition could be useful, you need to face some facts about human nature. If someone wants what you have, they may try to hurt you to get it. Bartering is good, but conquest is often considered faster and easier, and the law is notorious for being absent during these dire circumstances.

Bringing Them Together

Tangible and intangible assets are great when paired carefully. Everything goes up and everything comes down–this is the nature of markets. Just be sure to remember that buying things when they’re cheap is the best way to ultimately profit from them.

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Post by Kelsey Libert, on behalf of UFXMarkets

(Photo by digitalmoneyworld)

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