Many individuals like investing in physical assets, such as real estate and gold. The touch-and-feel factor is no doubt a positive aspect. But there is the issue of portability — you cannot move (real estate) or easily carry (gold) your investment if your employment demands you to relocate frequently. In this article, we discuss portfolio’s portability issue and look at alternative ways of investing in real assets.

Real issues Your desire for real assets can be, perhaps, attributed to your family background. Your grandparents and even your parents may have invested heavily in real estate and gold. Their investments could have brought them handsome returns; real estate prices have climbed sharply in recent times as have gold prices since the sub-prime crisis in 2008. But this does not necessarily make real assets an attractive investment choice for you.

Unlike your grandparents orparents, you may not live in the same city all your working life. We live in a world where employment is uncertain and professional work requires frequent relocation. This means your employment could take you across cities in your home country and even outside the country. And that may cause problems in managing your real assets.

Take your real estate investment. Sure, you can let out your property on rent. But who will maintain it? How will you safeguard your investment if your real estate is in a city where you do not live? Likewise, your employment portability can be a cause for concern if you invest in physical gold. Will you keep your gold in safe deposit bank locker in the city where you first lived? Or will you transport your physical gold to wherever you relocate? Remember, it may be relatively easy to buy gold than to get a bank locker!

Portfolio portability Your portfolio’s portability should be in line with your employment portability. You should buy gold ETFs instead of physical gold. These are financial investments in gold and give you the same return as physical gold. Besides, you can convert your financial gold into cash faster.

Of course, financial gold deprives you of the touch-and-feel factor. We suggest that you have minimum investment in physical gold and carry the rest as financial gold. The advantage with financial gold is that investment selection is easy; all gold ETFs offer similar returns and charge similar fees. Buying physical gold, including jewellery, on the other hand, requires more skill.

What about real estate investment? If your employment is portable, you should consider deferring your real estate investment to age 45. For one, you may have a better picture of how you want your post-retirement life to be when you are past your mid-career than when you are 35. Thus, making your real estate investment past 45 could keep you in proximity to your investment property. And two, you may still get a 15-year home loan at 45.

Fortunately, soon you may be able to invest in financial real estate through Real Estate Investment Trusts (REITs). No doubt, REITs that are exchange-traded will have additional market risks. But REITs can improve your portfolio’s portability besides offering investment to several properties for a smaller capital outlay.

Your portfolio’s portability level becomes increasingly important in a globalised employment market. This does not mean that you should not have real assets in your portfolio.

Besides your self-occupied house, you would do well to keep your real asset investments to not more than a fourth of your total portfolio if your employment is portable. Of course, the portfolio portability argument assumes that you cannot always depend on your extended family to care for your real investments at home when your professional work takes you elsewhere.

(The author is the founder of Navera Consulting, a firm that offers wealth-mapping and investor-learning solutions. Feedback may be sent to >knowledge@thehindu.co.in )

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