Real assets are often chosen for their ability to hedge against inflation. 

These tangible assets—spanning real estate, infrastructure, and commodities—offer more than just physical value. They can represent a useful component of a well-rounded investment strategy that balances risk and reward. 

This article will explore several examples of real assets and position them within the broader investment landscape, clearly explaining their potential in thoughtfully constructed portfolios.

Types and Characteristics of Real Assets 

Real assets are defined by their tangible nature, offering value through their physical properties. 

This category includes things like:

• real estate, with its opportunities for income and capital appreciation
• infrastructure, vital for economic development and often yielding stable, inflation resilient returns, and
• commodities, the raw materials driving global markets like wheat or gold

Each of these asset types carries distinct characteristics—like income generation, growth potential, and inflation sensitivity— making them potentially useful in a diversified investment approach.

The Inflation Hedge

One of the most persuasive attributes of real assets is their capacity to hedge against inflation. 

Historical analysis shows that real assets tend to maintain or even increase their value during inflationary periods. 

For instance, real estate often benefits from rising prices, as property values and rents increase with inflation, preserving capital value and purchasing power for investors.

This is because the economic drivers of real assets are often directly or indirectly tied to inflationary trends, which has historically resulted in outsized returns when inflation exceeds expectations.

Similarly, infrastructure assets often have contractual cash flows that are directly linked to inflation, providing a natural hedge.

In contrast, traditional asset classes like stocks and bonds have a more disinflationary bias and tend to perform better when inflation is low or falling.

Challenges and Opportunities in Real Asset Investment

While they can offer benefits, they are not without their challenges. Higher entry costs, management complexities, and liquidity issues might put you off. 

Real assets can provide a tangible counterpoint to other alternative investments like hedge funds, private equity, and digital assets.

The direct ownership of physical assets might offer some advantages, like the potential for steady income and protection against inflation, but these qualities are not guaranteed and they are not exclusive to real assets. 

It’s also important to recognize the cons, including potentially higher management costs, lower liquidity, and lower target returns than some other types of assets. 

Taken together, you’ll have to weight the pros and cons. Like all investing, it’s a very personal choice.