The resurgence of tangible assets in modern portfolio strategies

The way that asset managers construct investment portfolios has changed considerably since the low interest-rate period came to an end. Both institutional investors and individual investors are reviewing how they allocate their money among stocks (listed equity), bonds (fixed-income) and investments outside the publicly traded markets. Global alternative assets under management are expected to increase by $12.5 billion annually from $16.8 trillion at the end of 2023 to approximately $29.2 trillion by 2029, representing an annualized growth rate of 9.7%. Holding physical items of value – referred to here as "stores of value" – is one part of this larger trend. Stores of value behave very differently from paper claims on future cash flow.

Why Stores of Value Belong in Your Asset Allocation Portfolio

Institutional investors diversify across multiple economic factors; i.e., precious metals (bullion coins and bars), generally, respond to real yield expectations, expectations of currency debasement, and geopolitical events. Collectibles (numismatic coins, stamps, etc.) represent a secondary layer based on scarcity, condition, and provenance that can cause values to fluctuate independently of central bank actions. Knight Frank’s Luxury Investment Index, tracking a weighted basket of ten “passion” assets, increased by 72.6% during the last ten years even though it fell by 3.3% in 2024. Coins were one of five categories that rose by 2.1%, along with jewelry, timepieces, handbags, and classic automobiles.

How Family Offices Have Been Leading the Movement

Data provided by Preqin shows that family office managed private capital totaled $7.67 trillion in North America at the midpoint of 2023. This represents greater than 57% of the $13.43 trillion worldwide total. According to Knight Frank’s 2024 Wealth Report, on average ultra-high-net-worth families’ portfolios contain approximately twenty percent of their net worth invested in “luxury” or “passion” assets.

Because these allocations create both requirements for standardized procedures for valuing, storing, insuring, and reporting them as well as a need for frameworks that mirror those associated with all other types of alternative investments. Grading organizations like Professional Coin Grading Service (PCGS), Numismatic Guaranty Corporation (NGC) for coins; third-party authenticators for timepieces and art; and bullion investors who use the London Bullion Market Association’s (LBMA) Good Delivery List for establishing minimum standards regarding bar weights, purity, and accredited refineries for bullion bars provide standardized reference points for institutional investors, their auditors, and other stakeholders.

Key Practical Issues That Must Be Addressed Before Committing Capital To A Store Of Value

A number of practical issues must be addressed prior to investing in a store-of-value. As examples, liquidity varies greatly depending upon the type of item being purchased. Bullion coins produced by reputable mints sell closely to market prices at relatively thin bid/ask spreads; however, fewer rare numismatics may be available through specialists or auction houses and therefore require longer holding periods.

Similarly, storage options also come with costs; e.g., segregate vaulting with an LBMA recognized custodian; allocated depositories; or private safekeeping accompanied with adequate insurance coverage. Taxes applicable to the sale of physical stores-of-value vary significantly by jurisdiction. For example, in the U.S., physical precious metals sold after one year qualify as collectibles subject to a maximum federal long-term capital gains tax rate of 28%; whereas the maximum long-term capital gains tax rate applicable to most other long-term assets is 20%. Furthermore, reporting obligations exist related to IRS Forms 1099-B and Form 8300; specifically, certain dealer transactions and all cash transactions exceeding $10,000.