Trends in investment products come and go, but they do not always guarantee high future returns. In contrast, assets that have supply constraints relative to demand tend to appreciate in value over time. Tangible assets often fit this criterion.
For example, real estate in London and Hawaii—currently part of our investment portfolio—meets these conditions.
In London, laws prohibit the construction of buildings that would disrupt the medieval European landscape. Similarly, in Hawaii, development is restricted to preserve the natural environment. In Japan, cities like Kyoto have regulations that prohibit buildings that would alter the city’s traditional scenery.
In these regions, no matter how much demand rises, it is physically impossible to increase supply. This supply constraint helps maintain asset value and prevents price depreciation.
Gold and antique coins are also examples of assets with restricted supply. Gold has a finite global reserve, and efforts to artificially increase its supply only drive up costs. Likewise, antique coins become scarcer over time.
Tangible assets do not generate interest, but as long as they are well maintained, their value generally trends upward.
Even money itself is subject to the forces of supply and demand. When the money supply exceeds demand, its value naturally declines. As the value of money falls, the price of goods rises accordingly.
Since the 2008 Lehman Shock, governments worldwide have injected large amounts of money into the economy as part of stimulus measures. Additionally, inflation has been rising for the past two years. With inflation combined with the depreciation of the Japanese yen, the value of the yen continues to decline.
For tangible assets, this situation presents two major tailwinds: an oversupply of money and rising prices.
To protect your wealth, consider incorporating tangible assets into your investment portfolio.