Hard assets are real assets they may have several different types such as precious metals, commodities, natural resources, and real estate.
As inflation is increasing in Pakistan over the course of time, hard assets can be your way to go through this hard time. Real estate is a unique hard asset compared to others as it can earn income while hedging inflation. Hard-assets have the ability to keep you stable when things go down.
Hard assets have a unique feature than soft assets that are intrinsicality. They act as a fence when inflation rises. However, An asset holds intrinsic value if it is naturally limited. It can be used to produce or buy a good or service that serves a fundamental, basic human need. Resources such as diamond, gold, oil, and natural gas are considered hard assets as they can be used to buy goods or produce goods.
Soft assets like money can be devalued to the point of zero and they can’t be used to produce a product that serves a fundamental need. Real estate can serve the basic need, as land, as well as property, can be viewed as two different commodities.
As the land is limited in the world, but they have different worths. Such land can be more valuable due to its location. But it will be scarce as an increase in its demand.
Buildings are looked at as a different commodity as the structures on a plot of land are naturally limited in both quantity and size by the dimensions of the land. Buildings are composed of raw material, if their prices increase the price of building and land also increments.
Reasons behind Inflation
Hard-assets have the ability to retain value when inflation rises. Their value frequently rises as the general price levels for goods and services rise.
The bonds and stocks have a hard time while keeping pace with inflation. They lose value as the Consumer Price Index increases.
Inflation is caused by two major reasons:
Can lead to inflation in rapidly growing economies as companies begin to raise prices for their goods and services. Because demand for these products increases, production increases, and production costs can increase, too.
Occurs when a country prints more money, also known as quantitative easing, which lowers the purchasing power of the currency, making it less valuable. This may occur during a financial crisis when a central bank attempts to lower interest rates to make it easier to lend money among other tactics.
Hard asset in Inflation
Real estate like other assets not only have the ability to preserve value during periods of inflation. it has the ability to earn income through rental payments for leased spaces.
Real estate has been attractive to investors since the beginning as it can protect you in long periods of inflation. Scarcity can increase the value of rental income in the same way as real estate values. So invest in real estate so it can save you in your worst times.