Real Assets

Real assets are investments whose value is primarily driven by their physical properties.  Even when financial markets struggle, real assets like commodities, gold, and real estate maintain their intrinsic value and often increase in price thanks to a flight to safety by concerned investors.  They are great ways to diversify a portfolio as stores of value, insurance against stock and bond adversity, and alternative engines of portfolio growth.

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Asset color

Other

 

Definitions

Commodities : Commodity funds invest in a wide variety of items such as energy, agriculture, metals, livestock, and timber through the use of futures, stocks, and other financial instruments.

Gold : Gold funds track the price of physical gold bullion, NOT gold miners.  In fact, the numbers are the exact same if you purchase bullion coins or if you buy a gold ETF.

REITs : Real estate investment trusts are companies that own or finance income-producing real estate including residential mortgages, commercial properties, and even timber land.  Their stocks offer individual investors a highly liquid method of investing in properties that would otherwise be cost prohibitive to purchase on their own.

 

Country coverage

Real assets are generally global and not confined to a specific market, although all returns are translated to local currency and inflation.  REIT data is based on the United States REIT market, although a good global REIT fund is also a good option.  Because the US comprises over 60% of a typical global REIT fund, the numbers should be reasonably close in normal portfolio percentages.

 

What the asset codes mean

The asset codes for real assets are pretty straightforward.  Please note that while there’s a gold ETF that goes by GLD, GLD on the site can equally represent other gold funds like IAU.

COM : Commodities

GLD : Gold

REIT : Real Estate Investment Trusts

 

Purchasing a real asset fund

Real-world index funds simply track the above index definitions.  So to add a particular asset to your portfolio you just need to find an index fund tracking your desired index.  The Index Funds list can help you find a fund for your portfolio, but here are a few additional tips:

– Many commodities funds are actively managed.  The data here tracks a true passive index.

– Index funds containing things like gold and REITs have different tax treatment than stocks or bonds.  Depending on your personal tax situation, they could be better or worse from a tax perspective.  Be sure to understand the ongoing tax impact of real assets before you invest.

 

Other notes

– Investors should note that the repeal of Bretton Woods in 1971 changed how gold is fundamentally priced.  As a result, gold experienced a significant 3-year surge from 1972-1974 for reasons more complicated than normal market returns.  So when studying portfolios with gold be sure to also look at the periods starting in 1975 and later.  That said, don’t just assume that the run-up favorably skews all portfolios containing gold!  Portfolio Charts is unique in how it displays both the best and worst start years all in one chart, so study the big picture for yourself before passing judgment.

– There is a common misconception that gold was illegal to own in the US prior to 1975.  While physical gold bullion was indeed prohibited for individual investors prior to 1975, the trade of gold certificates was legalized in 1964.   Think of them as similar to how modern gold ETFs work where you don’t have the gold in your physical possession but do have legal ownership.