Digital vs Physical Assets

Not a day goes by where we don’t hear about bitcoin in the news or from a friend who has a hot tip on a new cryptocurrency. The past few years have seen an increase in the popularity of digital assets such as cryptocurrency and Non Fungible Tokens (NFTs). Direct shares and managed funds are also digital assets.

However, this does not diminish the value of physical assets such as property, gold and cash. There are certain societies in the world that accumulate gold because it is a status symbol. On the other hand, people in countries like Australia love to invest in property.
As taught in Finance 101 courses, diversification is a key aspect of investment and therefore, it is important to look beyond investment properties and consider other asset classes to spread your risk. With easy access to shares, managed funds and crypto, there is now a buffet of investment options to choose from, albeit with caution.

Let us understand the difference between digital vs physical assets.

Digital Assets

Similar to physical assets, they give you ownership in an asset but which is intangible, just like a JPEG image or PDF file. Shares, managed funds and cryptos are owned, stored and recorded in a digital format.

Pros

Transaction costs – Usually, brokerage or commissions on buying and selling digital assets is much lower than on assets like property.
Liquidity – You can buy and sell them instantly on the internet with just a few clicks.
Fractional ownership – You can now buy a fraction of a share or a bitcoin on a trading platform. Common investors now have access to investment opportunities that were previously available only to large institutions.

Cons

Fear Of Missing Out (FOMO) – Given the increase in popularity of crypto and shares along with their easy availability, people are trading on them simply to be a part of the hype rather than conducting with their own research.
Security – Storing and securing digital assets is becoming increasingly important as your account can be hacked into and you can lose your valuable assets. Even though an asset like crypto which is backed by blockchain technology is not hack-proof.

Physical Assets

Owning a physical asset such as property, gold, cash or even collectibles is not a new concept. They are tangible assets that give us a sense of security because we can see, touch and feel them.

Pros

Acceptability – Given the history behind these assets, they are easily accepted as a form of asset in all parts of the world.
Usage – You can live in a property or wear gold jewellery as these assets can be used for enjoyment purposes too.

Cons

High barrier to entry – There are high cost barriers to purchase physical assets such as building a 10%-20% deposit prior to applying for a loan to purchase a home. These assets are limited in nature making them expensive to acquire.
Liquidity – Apart from cash, other physical assets are not very liquid. It can take months to sell a property. Also, you cannot sell only a bathroom of your house if you needed urgent cash.

Next Steps

When deciding where to invest your hard earned money, it is important to consider your life goals, age, current financial situation, risk appetite and the most important thing – something that will make you sleep peacefully at night.
You should consult professionals including a financial adviser to help navigate you through the different investment options that suit your situation.

Disclaimer

This information is provided as an information service only and does not constitute financial product advice and should not be relied upon as financial product advice. None of the information provided takes into account your personal objectives, financial situation or needs. You must determine whether the information is appropriate in terms of your particular circumstances. For financial product advice that takes account of your particular objectives, financial situation or needs, you should consider seeking financial advice from an Australian Financial Services Licensee before making a financial decision.

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