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Creative Capital Wealth Management Group’s Founder and CEO shares how to build wealth by investing in the promise of infrastructure.
Look around the United States and you will see aging infrastructure and risks of potential failure. The positive for investors is there are investment opportunities to fix infrastructure while also making money for yourself. Many find investing in infrastructure to be a beneficial alternative investment.
Many parts of our world fit into the infrastructure space including energy, transportation, utilities, communication, network infrastructure, and even storage spaces. Energy is, of course, the power plants, but also the storage, transportation necessary, gathering, and process of energy.
Transportation isn’t just the bridge that’s deteriorating; it includes toll roads, airports, marine ports, and railroads. Utilities do include energy, but more specifically electric and gas utilities, renewable energy, and water. Communications, including satellites and cellular towers, are critical infrastructures that need to be invested in to have a successful economy moving forward.
Network infrastructure is also critical to our advancements, and in some ways, you can actually own a piece of the Internet! Finally, something that many don’t think about is storage centers, distribution, and logistics, and they need to be considered as we move forward.
Everyone is likely aware that the United States needs to invest in infrastructure. But, most people probably have not considered investing in it as part of their portfolio of investments. There are many different types of alternative investments that focus on infrastructure. While some funds focus on one of the types below, other investments do a little of all types. Let’s review why this could be a good addition to your portfolio.
Three Fundamental Trends Show the Need for New Investment
• Digital Transformation: As the digital world moves forward, the infrastructure under it must expand. This includes everything from data centers to fiber networks. One reason the digital transformation has been referred to as the Fourth Industrial Revolution is that it is expected to create 3.7 trillion in value by 2025.
• Energy Transition: The 2015 Paris Agreement set in motion a treaty on climate change with the goal of limiting global warming by reducing greenhouse gas emissions that are produced by the burning of fossil fuels. In 2020, fossil fuels generated more than 80 percent of global energy consumption. Renewables, nuclear, and hydro are projected to become the largest energy generators between 2030 and 2040.3 The amount of investment required is $125 trillion.
• Enhancement of aging infrastructure is needed to maintain and modernize our infrastructure for positive economic growth. It’s estimated that $94 trillion needs to be invested in infrastructure.
5 Potential Investment Benefits for Investors
1. Stable and predictable income and cash flow may be achieved through long-duration contracts and near-monopolistic characteristics of infrastructure assets.
2. Infrastructure has historically generated attractive total returns consisting of current income and appreciation. If you don’t believe me, Google it.
3. The persistent demand for infrastructure products and services has resulted in a historically low correlation to other asset classes. This means it will have a lower economic sensitivity, providing potential portfolio diversification benefits.
4. Many infrastructure assets are monopolistic in nature, have high barriers to entry, and enjoy inflation-linked pricing in their contracts, functioning as a potential hedge against future inflation.
5. Investing in infrastructure is good for the government. An IMF (International Monetary Fund) estimate shows that a 1 percent increase in infrastructure spending globally is associated with a 1.5-3 percent GDP increase in output over the long term.
Bottom line: Investing in infrastructure is a global growth opportunity with attractive historical returns that provide stable and predictable income and will also allow for portfolio diversification.
Read more at Forbes.
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Securities are offered through Arkadios Capital. Member FINRA/SIPC. Advisory services are offered through Creative Capital Wealth Management Group. Creative Capital Wealth Management Group and Arkadios are not affiliated through any ownership. This material was created for educational and informational purposes only and is not intended as tax, legal, or investment advice.
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Frederick Hubler is the Founder and CEO of Creative Capital Wealth Management Group, a retainer-based wealth strategy firm specializing in alternative strategies located in Chester County.