If there is one reservation that more people hold about investment than anything else, it is a reluctance to invest in things that they can’t put their hands on.
If you buy a rare baseball card, you have something to hold.
If you put your money in a savings account, you can always withdraw it.
But buying stock in a company feels like a mysterious void to some people because there is no physical manifestation of what they own.
At the same time, these pragmatic people want to help their money grow so that they can afford things that they can put their hands on.
They like things that generate money for them with no added effort and no added risk. This specific group of investors is an ideal one for investing in real estate and precious metals.
The appeal of these investments is far more than the fact that they’re tangible. They’re also finite. It is a fundamental concept of economics that scarcity drives value. Like currencies, stocks can be divided and created almost endlessly, and wise investors realize that the value will degrade quickly. But they aren’t making more land, and while precious metals are still being mined, they aren’t being made.
It is this understanding that makes it far more appealing to certain investors to buy gold than to hold stock in a company. And there are other reasons.
No matter how well you research a company or what glowing recommendations your broker can give you about a stock, it can still go belly-up and leave you out in the cold. The horrific case of Enron–at one time considered an excellent investment–is a perfect example of how cooking the books can make it possible to fool everyone from the SEC to the average investor.
Real estate and precious metals will fluctuate in value, but you can always count on them to rebound from whatever troughs they may visit.
How do you feel about owning collateralized debt obligations? Unsure? Probably so. People who think tangibly about investments prefer things that they can understand. Real estate is direct. You are investing in 436 Main Street in Mountain City, USA. You can drive there and look at it if you want.
The same is true of precious metals. If you ever forget what gold is about, you can probably look at the third finger on your left and jog your memory. The market is centered on the demand for that shiny metal–too soft to make tools or build buildings, but incredibly beautiful to see–and when the economy supports lots of people buying it, your money grows.
A review of the history of Wall Street quickly finds some “black” days, when massive collapses hit and destroyed billions of wealth in a day. Is it any wonder that many steady-handed investors want nothing to do with that kind of risk?
When the market tanks, tangibles react. Everybody flees from paper investments and back over to the stalwart metals and real estate. The message here is that these investments can be more than just an escape hatch when things get dicey elsewhere. They can also be a safe haven that’s largely insulated from the unpredictability that permeates most other sectors.
Investing is never a zero-risk activity, but some people misconstrue that. Stocks truly can go to a near-zero value and never recover. But real estate and precious metals have intrinsic value driven by scarcity and demand, so that no matter what other investment instruments may do, they’ll remain solid and predictable. And solid and predictable are exactly how you can describe the people who like investments like this.
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