Long term Investing in Real Assets

When you say the word investment, stocks and bonds immediately spring to mind. However, you can also be investing in real assets, such as infrastructure, to build a diversified portfolio and provide an inflation-linked source of income.

Real asset investment includes anything that’s tangible.

Utilities, transport and social are the three main categories, and can encompass everything from electricity to roads. But what are the advantages of putting money into these opportunities?

The benefits of real asset investment

Typically, infrastructure investment yields returns of 4 and 6%, which is can be better than the return on the majority of deposit accounts and equity funds. Additionally, there can be levies associated with that investment – such as usage fees, rents and tools – which boost income, as they are linked to inflation.

There are a lot of opportunities out there to invest in real assets. The government is always looking for private partners to support its projects, which provide predictable cash flow in return, making them an ideal addition to the portfolio of experienced investors, as they are not linked to what’s happening in the stock market.

Infrastructure investment also generates a strong sense of ‘giving back’. Private backers are the driving force behind UK innovation programmes regarding energy, water and digital connections, to name a few. The Channel Tunnel is a great example of a project underpinned by private investment.

Additionally, it has significant economic benefits; 90p in every £1 spent on construction projects remains in the local area, while investing in regional projects can improve your lifestyle at the same time as generating income.

Mitigating risk

Though the argument to invest in infrastructure seems compelling, it is worth bearing in mind some risks that may beyond your control.

Real assets are influenced by geopolitical events, which can cause inflation and/or an increase in interest rates. Infrastructure is more vulnerable than many other types of investment by its nature.

The best way to counteract these risks is to ensure your adviser understands, and outlines, the role that infrastructure investments will play in your overall portfolio. They will also be able to mitigate risk by building a diversified portfolio spanning multiple industries, territories and regulatory regimes.

How infrastructure funds work

There are two main options for investing in infrastructure.

Firstly, buy shares in a business that specialise in these types of projects. The benefit of this approach is the huge capital growth potential, however, the yields can be modest depending on the dividends of the company you have invested in.

The second method, is investing directly into infrastructure projects. Your income is tied to how much the facility is utilised. However, there is the option to invest in a ‘payment for provision’ asset, where an annual rent is accrued, regardless of how much that asset is used. In this scenario, the returns may be lower, but payments are likely to be more consistent.

Managing your investments through a professional organisation is the best way to discover which option is most suitable for your financial goals.

If you’re looking for a long term investing opportunity that isn’t tied to the stock market, and the opportunity to create a diversified portfolio in a manner that’s likely to produce strong, stable results – albeit not necessarily high yields – then infrastructure and real asset is an appealing prospect.

When you need help with your investments, our professional team can you to develop a portfolio right for you.

The value of investments can go down as well as up and you may not get back the amount invested.Past performance isn't an indicator of future performance