Pros and Cons of Common Investment Assets
While we’ve spoken about the power of diversifying a portfolio in the past, it’s important for investors to understand the specifics of each investment asset. It’s typically a good idea to have a range of investment types offering varying levels of risk, reducing your dependence on one market. You may find that some assets – such as property – are incredibly flexible and can be inserted into a wider portfolio relatively easily, while others suit a very specific strategy.
Every asset has pros and cons that will benefit varying investors and strategies in different ways, so be sure to consider your long-term goals at the very start, to ensure you’re making informed decisions on the most efficient assets for you.
As you might expect, we’re starting with property. Commonly listed as the most desirable asset for investors across the globe, property is flexible and has the potential for incredible returns over the long-term.
It’s a relatively simple vehicle to get started with, incredibly accessible for investors at different price points and represents a mature market, meaning there’s no shortage of historical data for your research.
According to our polls, 40% of investors are interested in adding a property investment to their portfolio and yet only 19.30% actually do – highlighting the desirability of this asset class. This is largely driven by its reputation as a secure asset – property is more resilient to external factors.
Its greatest strength as an investment is its flexibility. With the potential to deliver two different income streams – rental yields and capital appreciation – property is a very diverse asset within itself.
From the different property types available to the locations you can invest in, it’s possible to have a portfolio entirely based around property that covers multiple bases, helping you mitigate risk. While it’s always good to have different asset classes entirely, property represents an excellent foundation to build upon.
- Relatively stable investment
- It can easily be leveraged
- Long-term investment that maximises based on time in the market
- Flexible and easy to diversify
- High ceiling for returns
- Not considered as ‘liquid’ as other assets
- Potential for a high entry cost
- Can rely on good tenants or property partners
- Extra costs can arise if you’re looking for a ‘hands-off’ investment
Stocks and Shares
A bread and butter investment for many portfolio’s, stocks and shares is typically considered the traditional investment asset by many different people.
While the idea of investing in the stock market can be incredibly daunting, it’s still relatively straightforward to get an investment under your belt. With plenty of options available, it’s very accessible and has one of the lowest entry costs depending on your chosen strategy.
In terms of liquidity, stocks and shares are unmatched. It’s common for investors to buy, sell or trade in a matter of minutes and if you need access to your money, it’s always to hand. The advancement of technology has played a huge part in this and in terms of this list, stocks represent one of the most streamlined assets.
The flexibility of stocks and shares means they make excellent investments to support larger, more physical assets.
- Good option for short-term investors
- Flexible to suit a range of portfolio’s
- Excellent ‘liquidity’, money isn’t tied up
- Lower entry cost than others on this list
- Easily impacted by external factors
- Relatively volatile compared to other investments on this list
- Crashes can take years to recover
- Not ideal for the more risk averse investor
In our research we found that land remains one of the most desirable assets but is typically invested in the least.
One of its major benefits is the flexibility it can offer. Empty land means investors have the potential to build the most suitable opportunity to suit their strategy or the market, which is ideal for those with a specific niche in mind.
Land is also much lower maintenance than many other assets on this list – requiring very little upkeep. Provided you’re investing in vacant land – as opposed to developed land – you’ll generally find that initial entry costs are much lower.
Finally, land is ideal for those that want full control in an investment. If you’re looking for an investment where every aspect is overseen by yourself, land represents one of the most popular choices.
- Opportunity to create a specific or best use
- Full ownership
- Low maintenance investment
- More difficult to find traditional financing
- No immediate returns
- Requires more documentation/permits than other options on this list
One of the most historically popular assets, gold is once more rising in popularity, although you’re less likely to see people digging in remote locations.
As a physical, tangible investment, gold bullion tends to offer a sense of security and long-term protection that many other assets cannot.
With the asset rising in popularity over the last two decades, the market has grown in volatility, meaning we’ve seen impressive highs but also some unfortunate lows.
Buying and selling gold is extremely simple and a very transparent process. Investors can quickly and easily test the gold content of a coin or billion during a transaction, which reinforces the security of the asset.
At the same time, possessing gold can be extremely satisfying and offers the potential for incredible returns, provided plenty of research is performed and the market is right.
- Relatively easy to buy and sell
- A tangible, physical asset can provide security for investors
- Potential for incredible returns
- Extremely volatile market after rising in popularity
- Dealer fees can bump entry prices up
- Verifying quality of the asset can be difficult
- Storing gold bullion can be a hassle
The least mature market in this list, cryptocurrency represents the new wave, a digital currency that is not owned or distributed by a single entity.
Popularised by Bitcoin, cryptocurrency has quickly become one of the most popular assets for the incredible returns that can occur in a short space of time.
Offering the liquidity of stocks but through a much more streamlined investment process, cryptocurrency is growing in popularity alongside the accessibility of the tech that powers it.
With a high returns ceiling, a suitability for long-term holding and plenty of different asset types available within the field, cryptocurrency is unfortunately hindered by a higher level of volatility.
Uniquely, cryptocurrency is also hindered by the potential for mis-management. As a new market, many cryptocurrencies are essentially managed by startup companies, which have the potential to impact volumes both positively and negatively.
- Incredible potential for returns
- Flexibility to suit both short and long-term strategies
- Excellent real time analysis and accessible
- Much higher liquidity
- Much higher volatility
- Potential for mis-management
- Chance of resource shortages
As always, when it comes to investment, there’s no right or wrong answer. Depending on your strategy or final goals, different assets can help you get there. The key is to have a diverse range of assets within your portfolio.
Diversification can help you mitigate risk further down the line and ensure the opportunity to benefit from multiple income streams – whether you’re aiming for long-term yield returns or something more short-term.
According to our research, property is the most popular likely due to its flexibility and adaptability. While the initial cost may be higher than other common assets, there’s no doubt that for a long-term investment, property has demonstrated its stability and potential.