Liquidity, Liquid Assets, Alternative Investments and Tangible Assets

by humagaia

Tangible assets and alternative investments are diversification strategies in investment portfolio management. Liquid assets and liquidity are risk management necessities.

Liquidity using liquid assets minimizes risk of that rainy day causing upheaval. These assets are the mainstay of a balanced portfolio of investments. But widening your horizons can bring more balance whilst increasing potential returns. Alternative investments give that expansion whether they are tangible investments, intangible assets or standard portfolio investments.
Combining alternative investments, liquid assets, non-alternative investments and liquidity together in an investments strategy brings diversification whilst not causing a dramatic increase in overall risk.

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Tangible Assets and Alternative Investments

Tangible assets and alternative investments are another way of bringing diversification to an investment portfolio. By diversifying the assets you hold you can reduce the overall investment risk.

Tangible assets are basically those investments that are not financial instruments.

Alternative investments can be tangible assets as well as some less mainstream intangible assets.

Types of tangible assets include:

  • Real estate
  • Commodities
  • Precious metals & gemstones
  • Antiques
  • Art
  • Collectible stamps, coins and banknotes
  • Jewelry
  • Rare wines

Alternative investments that are not tangible assets include:

  • Carbon offsets
  • Venture capital
  • Angel investment in theater, film and music production.

Tangible Investment

A tangible investment is something physical that you can touch. It is an investment in a tangible, hard or real asset or personal property. This contrasts with financial investments such as stocks, bonds, and other financial ...

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Alternative Investments

An alternative investment is an investment product other than the traditional investments of stocks, bonds, cash, or property. The term is a relatively loose one and includes tangible assets such as art, wine, antiques, coins, or stamps ...

Tangible Assets As An Investment.

Over several decades Auction Houses have recorded substantial rises in quality antiques.

Sure, some areas of antique collecting have been hit by recession, but the upper end of the market, the quality end, has seen steady rises throughout.

Quality always sells.

There is a place for investment in tangible assets in an investment portfolio, and you gain the added pleasure of ownership and appreciation.

This does not mean that a portfolio of antiques will outperform a portfolio of equities.

In fact, quite the opposite is true.

In the long-term, which is what all investment performance should be based on, equities have out-performed all other types of investment.

That does not mean that there is no room for antiques, art, precious metals and property in your well-balanced investment portfolio.

What it does mean is that you should consider that a strong position in equities makes sense for you.

Equities form the bed-rock of a high-performing lower-risk strategy for the majority of investors.

The advantage of equities over tangible assets is their liquidity.

This is the ability to turn the asset into cash as and when you need it - well almost.

Alternatives Investment Strategy

Risks, returns and alternative investments
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Every investment portfolio must have a certain amount of assets that can be turned into cash quickly.

The reason for this is that nobody knows what is around the corner. That rainy day sometimes arrives. Your risk strategy should always include the need to transform a certain percentage of the investments into cash.

This is known as liquidity.

The liquid element of your portfolio is that which is transferable into cash without difficulty.

When it comes to selling an investment, part of the risk is how quickly it can be transformed into cash. 

It takes longer to sell real estate than to sell antiques or collectibles. It takes longer to liquidate stocks or shares than to remove cash from a deposit account. It is essential to have liquid assets in your portfolio in order to cover unexpected events.

Risk and Liquidity

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Liquid Assets

Liquid assets are those that can be redeemed for cash without difficulty.

Liquid assets include:

  • Cash
  • Deposit accounts
  • Foreign currency
  • Stocks and shares

usually in that order for an individual investor. For large investments, where their sale could change market conditions, and therefore the ability to sell, the latter two may prove to be less liquid than would be anticipated.

Stock Market Liquidity

Stock Market Liquidity: Implications for Market Microstructure and Asset Pricing (Wiley Finance)

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Equity Markets in Action: The Fundamentals of Liquidity, Market Structure & Trading + CD

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Next Investment Article

Determining levels of risk and balancing them against benefits is essential in developing an effective and profitable, balanced and diversified, equity portfolio.

Market Liquidity

In business, economics or investment, market liquidity is an asset's ability to be sold without causing a significant movement in the price and with minimum loss of value. Money, or cash, is the most liquid asset, and can be used ...
Updated: 02/05/2021, humagaia
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