Investing in Infrastructure: Here’s why it is lucrative and how investors should go about it

Nick Sundich Nick Sundich, October 20, 2023

Investing in infrastructure can be a lucrative and beneficial decision for both individuals and governments. Infrastructure refers to the basic physical systems that enable modern society to function, such as roads, transportation networks, power grids, water supply systems, and communication networks. But why is it lucrative and beneficial? And how do you go about it?

 

Why investors might consider investing in infrastructure

One of the main reasons why investing in infrastructure is important is its impact on economic growth. Well-maintained and efficient infrastructure can attract businesses and create job opportunities, leading to overall economic development. In addition, investing in infrastructure can improve the quality of life for citizens by providing better access to essential services and reducing travel time.

Moreover, infrastructure investments can also have long-term benefits for the environment. For instance, investing in renewable energy sources such as solar or wind power can reduce carbon emissions and combat climate change. Upgrading transportation systems to be more sustainable can also lead to a reduction in air pollution and congestion.

 

Bridgin social inequalities

Aside from the economic and environmental benefits, investing in infrastructure can also help bridge social inequalities. In many developing countries, lack of infrastructure in rural areas leads to isolation and limits opportunities for marginalized communities. By investing in basic infrastructure such as schools, hospitals, and clean water systems, governments can improve access to education, healthcare, and better living conditions for these communities

When it comes to individual investors, infrastructure investments can also be a smart choice. Infrastructure assets typically have stable and predictable returns, making them an attractive option for those looking for long-term investments. In addition, infrastructure investments are often less volatile compared to other asset classes like stocks or bonds, providing a level of security for investors.

Finally, investing in infrastructure can also have a positive impact on society as a whole. By improving the overall functioning of essential systems, governments can create a more resilient and sustainable society. This not only benefits present generations but also lays the foundation for future generations to thrive.

 

How to go about it

So what are some ways in which individuals can invest in infrastructure? One option is through publicly traded infrastructure companies, such as those that manage toll roads, airports, or water utilities. Examples of toll road stocks include Transurban (ASX:TCL) and Atlas Arteria (ASX:ALX). Although the ASX’s only airport stock Sydney Airport delisted after being taken over, there are some options so far as utilities stocks are concerned. Among them AGL Energy (ASX:AGL), Origin Energy (ASX:ORG) and APA Group (ASX:APA).

Another way is through bonds issued by governments to fund infrastructure projects. Individuals can also invest in private infrastructure projects, either directly or through specialized funds. Direct investment may require a larger capital outlay but can potentially yield higher returns. Alternatively, investing in infrastructure ETFs or mutual funds can provide diversification and lower risk.

 

Key risks

While infrastructure investments may have many benefits, it’s important to remember that they also come with risks. Political instability, changes in regulations, and unexpected events like natural disasters can impact the performance of these investments. In many cases such events may be unexpected – just look at the COVID-19 pandemic and how it impacted toll road companies’ revenues. So many investors thought there was nothing that could possibly impact toll road stocks except individual companies losing their monopoly!

It’s essential to thoroughly research and understand the potential risks before making any investment decisions.

In conclusion, investing in infrastructure has the potential for significant returns with low risk, while also contributing to societal progress and sustainability. And therefore, it is worthwhile option to consider when looking for new asset classes.

 

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