These days, not a day goes by without hearing the words "inflation" or "yen depreciation" in the news. In fact, our daily lives are beginning to be directly affected by such factors as rising food and energy prices. However, many of you may not be aware of the fact that these changes in the economy are quietly but surely eroding the value of your precious "assets" that you have built up over the years.
Unfortunately, the era of "just deposit your money in the bank and you will be safe" has come to an end. In this article, we will explain why it is dangerous to continue to hold assets in cash, and why "physical assets" and especially "real estate investment" are effective as a concrete method to overcome this uncertain era, protect assets, and further increase them, in a way that is easy to understand for the average consumer, while also incorporating expert knowledge. The presentation will explain in an easy-to-understand manner for ordinary consumers.
Five Major Risks Threatening Asset Values Today
The first step in asset protection is to understand the nature of the risks we face. By transforming vague fears into concrete knowledge, you will be able to take appropriate countermeasures.
| Risk Type | Contents | Impact on assets |
|---|---|---|
| Inflation risk | A continuous increase in prices and a relative decrease in the value (purchasing power) of money. | As fewer goods and services can be purchased for the same amount of money, the value of cash and deposits will effectively diminish. |
| Interest Rate Risk | The impact of changes in interest rates on asset values. This is especially problematic in the current low interest rate environment. | In a "negative real interest rate" situation, where the interest rate on deposits is less than the rate of inflation, your assets will diminish just by being on deposit. |
| Market Risk | The fluctuation in the value of assets due to changes in the overall market, such as the stock market or bond market. | In the event of an economic recession or financial crisis, stock prices, etc., may plummet and the value of financial assets may decrease significantly. |
| Foreign Exchange Risk | The value of assets denominated in the home currency may fluctuate due to changes in foreign exchange rates. | As the yen depreciates, prices of imported goods rise and real purchasing power declines. The relative value of yen assets will decline. |
| Liquidity Risk | The possibility that you may not be able to immediately convert an asset into cash when you want to sell it, or that you may only be able to sell it at a significantly unfavorable price. | Real estate and some financial instruments may not be immediately convertible to cash when funds are urgently needed. |
These risks, especially inflation and aweak yen, are the most alarming factors in the current Japanese economy. The Bank of Japan has a price stability target of 2%, which in turn means that assets that cannot generate an annualized return of 2% or more are effectively declining in value. Cash and low interest rate deposits face exactly this situation.
Why "physical assets" are the key to asset protection
So how can you protect your assets from these risks? The answer is to utilize "physical assets.
Physical assets are assets that physically exist and have value in themselves, such as land, buildings, gold, and works of art. Their counterparts are "financial assets" such as stocks, bonds, and cash.
During a phase of inflation, the price of the physical asset itself tends to increase as prices rise. In other words, even if the value of money declines, the value of assets is unlikely to decline or even increase, making them a powerful hedge against inflation risk.
| Asset Type | Typical example | Change in value during inflation | Characteristics |
|---|---|---|---|
| Financial assets | Cash, deposits, stocks, bonds | Cash and deposits tend to diminish in value. Stocks fluctuate according to corporate performance. | They are highly liquid, but are subject to issuer credit risk and market fluctuations. |
| Physical assets | Real estate, gold, platinum, artwork | Asset values tend to increase as prices rise. | The assets themselves have value and are resistant to inflation. However, liquidity may be inferior to that of financial assets. |
Typical physical assets and their characteristics
There are various types of physical assets. Here is a comparison of typical ones.
| Assets | Advantages | Disadvantages | Degree of Recommendation for Beginners |
|---|---|---|---|
| Real estate | Rental income (income gain) Leverage effect (borrowing) Resistant to inflation It can be a substitute for life insurance. |
Initial cost is high. Low liquidity Risk of vacancy and rent decline Maintenance and management costs are high. |
★★★★★ |
| Gold | Safe asset with universal value Resistant to inflation and financial crisis Can be purchased in small amounts |
Does not generate interest or dividends (no income gain) Storage costs are high. Price fluctuation risk |
★★★★☆ |
| Art and antique coins | Potential for large price gains (capital gains) Pleasure of ownership |
Requires expertise in judging value Extremely low liquidity Risk of forgery Difficult to store |
☆☆☆☆ |
Why is "real estate investment" the best solution now?
As you can see from the above comparison, among the many types of physical assets, we especially recommend "real estate investment". The reason for this lies in the unique strengths of real estate.
1. Combination of income gain and inflation hedge:.
Unlike gold or art, real estate generates a stable monthly rental income (income gain) when rented out to third parties. Furthermore, when prices rise due to inflation, rents tend to rise accordingly, making real estate an excellent asset for both hedging against inflation and securing income at the same time.
2. Efficient asset building through the leverage effect:.
One of the greatest advantages of real estate investment is the "leverage effect. By using financing from financial institutions, you can acquire expensive properties that you would not be able to purchase with your own funds alone. This makes it possible to aim for greater returns with less personal funds and accelerate the speed of asset building.
3. Effectiveness as an inheritance and business succession measure:.
While the market value of cash and marketable securities is directly determined as the assessed value for inheritance tax purposes, real estate is generally valued lower than its market value because it is calculated based on roadside land prices and property tax assessment values. This can be expected to reduce the burden of inheritance tax, and is an effective means of ensuring smooth asset succession.
Conclusion: The First Step in a Future-Focused Asset Strategy
This article has explained the importance of "asset defense" to protect assets from modern risks such as inflation and yen depreciation, as well as specific methods of asset defense.
- Cash and deposits alone are at risk of diminishing asset value due to inflation.
- The key to asset protection is to incorporate inflation-resistant "physical assets" into your portfolio.
- Among the many types of physical assets, real estate is recommended for a wide range of investors, from beginners to experts, as it combines "income gain," "leverage effect," and "inflation resistance.
In these times of economic uncertainty, we must not stop to think, but actively gather information and take action. We hope this article will be your first step to protect your valuable assets and enrich your future.
Real estate investment is not a scary thing if you have the right knowledge. In fact, it can be a very reassuring ally for your future. If you would like more detailed information and advice tailored to your individual asset situation, please contact us for a free consultation. Our professional consultants will provide you with the best asset protection plan for each and every one of our clients.
Frequently Asked Questions (Q&A)
- Q1. How much personal funds do I need to start investing in real estate?
- A1. It depends on the price of the property and the evaluation by financial institutions, but in general, in most cases, you can start with a personal capital of about 10% of the property price. In recent years, there are cases where you can start with less personal funds or even a full loan (no personal funds), so please consult with a specialist first.
- Q2: I am worried about vacancies and falling rents.
- A2. Vacancies and falling rents are major risks in real estate investment, but these can be adequately controlled with advance measures. The important thing is to choose a property in an area with stable rental demand (e.g., central Tokyo, near a train station). Based on our many years of data and experience, we carefully select and introduce only properties with minimal risk.
- Q3. I am busy with work. Do I have to manage the properties myself?
- A3. Please do not worry. You can outsource all the complicated management tasks to a reliable management company, from recruiting tenants to rent collection, handling complaints, and procedures when tenants move out. Many owners are investing in real estate while focusing on their main business.
Daisuke Inazawa
Representative Director of INA&Associates Inc. Based in Osaka, Tokyo, and Kanagawa, he is engaged in real estate sales, leasing, and management. He provides services based on his extensive experience in the real estate industry. Based on the philosophy that “human resources are a company's most important asset,” he places great importance on human resource development. He continues to take on the challenge of creating sustainable corporate value.
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