richer and more meaningful. Yet they are also the most challenging to quantify and manage in the context of a client's overall wealth. Shifting public tastes play a vital role in the market value of art and collectibles, regardless of economic indicators. And, unlike acres of timber or a commercial building, these real assets aren't likely to produce income for an investor.

Moving into art
Merrill Lynch's Wealth Allocation Framework enables investors to consider assets against their long- and short-term financial goals. The framework classifies art and collectibles within the aspirational risk category — higher risk assets that fill some desire in life, such as owning and enjoying beautiful things. These assets may or may not provide a robust return if they are sold, but they should not be owned primarily for that purpose. It's better, instead, to seek returns from your personal- and market-risk investments, and make aspirational investments without jeopardizing financial goals. Acreage of timber or an office building may not hold the aesthetic appeal of a postmodern masterpiece, but if art is part of one's portfolio, an investor would be wise also to hold real assets that can deliver real returns.

When Bonds Behave Like Real Assets INFLATION PROTECTION TIPS AN EDGE.

While inflation-protected bonds do not possess the "tangible" quality of other real assets, they can earn a place in a portfolio by helping to hedge inflation risks, a quality other real assets possess. Issued by national governments, inflation-protected bonds are linked to well-established inflation indexes. In the United States, Treasury inflation-protected bonds (TIPS) follow the Consumer Price Index. The bonds pay yield on principal that grows in step with inflation. Though TIPS usually offer a lower yield than conventional bonds, they provide a significantly higher real return when inflation diminishes the value of other bonds. However, like other bonds, TIPS move as interest rates move. If interest rates rise or fall dramatically, TIPS' returns will be impacted either positively or negatively. How to Invest  Many countries offer inflation-protected bonds — inflation-linked Gilts in the United Kingdom and real return bonds in Canada, for example. Achieving diversification through international investments is increasingly important for wealthy globally-oriented investors with spending needs (and inflation risks) in many countries. Most often, investors consider purchasing bonds direct, but increasingly exchange-traded funds with both local and global inflation exposures have become common in portfolios. Last, actively managed strategies such as mutual funds also afford investors the opportunity to own inflation-linked bonds.