Investors have long relied on stocks, bonds, and ETFs—collectively known as paper assets—to build wealth. Yet, in an era of uncertainty and inflationary pressures, adding physical or “real” assets can be transformative. This article explores why moving beyond traditional financial instruments can fortify your portfolio and deliver lasting benefits.

Paper Assets vs. Physical Assets: Definitions and Contrasts

Paper assets represent digital or contractual claims on underlying instruments. While highly liquid and easy to trade, they carry counterparty risk, market sensitivity, and may underperform during downturns.

Physical assets—such as real estate, infrastructure, and precious metals—are tangible, carry intrinsic value, and often perform differently from financial markets.

Historical Performance Data: Building the Evidence

Multiple studies demonstrate that adding a meaningful allocation of real assets can improve overall portfolio metrics. A CBRE IM analysis covering Q1 2004 to Q4 2024 found that 25–30% real assets allocation outperformed traditional 60/40 equity-bond portfolios on a risk-adjusted basis.

Key takeaways:

• Sharpe Ratios improved from 0.45 for a 70/30 equities-bonds mix to 0.53 with a 50/20/30 equities-bonds-real assets blend.
• Monte Carlo simulations (20,000 paths) showed a +0.6% annualized uplift and tighter distribution with less left-tail risk.
• Infrastructure returned 9.9% privately and 9.1% publicly, both with low volatility.

Specific Physical Asset Classes and Recommended Allocations

To achieve the ideal 25–30% real assets target, institutional models suggest a diversified mix of private and listed holdings. This blend enhances cycle resilience and liquidity management.

• Private Real Estate (~8%): Income-producing, inflation-linked leases, defensive positioning.
• Private Infrastructure (~8%): Regulated cashflows, inflation pass-through, bond-like characteristics.
• Listed REITs (~3.5%): Liquidity combined with cyclical upside.
• Listed Infrastructure (~3.5%): Steady income and essential services exposure.
• Real Assets Credit (~2%): Senior debt with downside protection and low equity correlation.

Portfolio Impact and Strategic Benefits

Integrating physical assets yields multiple advantages:

• Low correlation to financial markets stabilizes returns.
• Inflation hedging and downside protection preserve purchasing power.
• Reduced volatility and shallower drawdowns enable faster recovery.
• Superior risk-adjusted returns boost long-term outcomes.
• Capital efficiency lowers risk contribution per unit of allocation.

Implementation Path and Trade-Offs

Transitioning toward real assets requires careful planning:

• Phased increases over time: Add ~5% real assets every five years via rebalancing and new commitments to reach 25% within a decade.
• Start at 10–12%: Fill gaps with listed real estate, infrastructure, and credit strategies.
• Understand trade-offs: Physical holdings entail maintenance costs and illiquidity versus the ease of trading paper assets.
• Investor fit: Suited for long-term horizons; access through specialized funds or direct investments.

Conclusion: Embracing Tangible Resilience

As traditional 60/40 portfolios face headwinds from elevated valuations and persistent inflation, diversifying into physical assets offers a compelling solution. By combining real estate, infrastructure, commodities, and credit with existing financial holdings, investors can achieve a portfolio that is more resilient in downturns, better protected from inflation, and capable of delivering consistent income streams.

Ultimately, the strategic inclusion of real assets empowers investors to hold not just promises on paper, but tangible assets that carry intrinsic value, ensuring their portfolios are built to withstand uncertain markets and thrive over the long term.