What is an asset

Asset is property that has some value and, as a rule, generates some income for its owner.

Assets in simple words

An asset may be a valuable that belongs to an individual or an institution. Assets can be classified in different ways.

Personal assets usually include money and its equivalents; real estate and land; personal property, such as cars, boats, and jewelry; and investments.

Organization assets usually help to sustain production and growth, and are normally classified and expressed in money value in financial reports.

From now on, we will be discussing assets from the point of investing, the goal of which is making a profit.

Types of assets in investing

Let us see what types of investment assets exist and what their peculiarities are.

Cash

This is one of the most liquid assets. Cash can be easily exchanged for goods and services but are extremely prone to inflation, and can depreciate with time. The investing characteristic of cash should be looked at only from the point of comparing the exchange rate of one currency to that of another.

Example:

Imagine you have a certain sum in cash that now allows for buying another currency at the exchange rate of 1 to 10. You buy the currency, and with time the exchange rate becomes 1 to 5. At this moment, you can exchange the currencies back and double the sum of your initial investment.

It should be minded that serious changes in exchange rates may also affect their purchasing power. In other words, the profit from buying and selling cash should be estimated from the point of exchanging them for a certain amount of goods and services at a certain point in time.

Deposits and bonds

Deposits and bonds are investment assets with fixed return. From a bank deposit the client receives interest, while from bonds their holders receive a coupon reward.

These are conservative investment assets that, as a rule, presume a modest return but may boast rather low risk levels, depending on the instrument.

Stocks

Stocks are securities that imply owning a certain share of a company and secure the shareholder’s right to receive a part of the company’s profit as dividends.

Buying stocks, an investor practically buys a part of the company. However, they do not need to spend time on management; they just share the success and failure of the company proportionally.

Mind also that the stock market involves high risks.

Derivatives

A derivative is a financial instrument based on liabilities on other investment assets or goods. Practically, a derivative is a stock on a stock. There are several types of derivatives: futures, forward contracts, swaps, options, Contracts for Difference.

These are complicated financial instruments, so work with them needs understanding of principles of their work and implies high risks.

Real estate

This is material property that the investor owns: land, commercial buildings, and houses. This asset can generate income if rented out. The price of the asset changes according to the market situation.

A substantial disadvantage of real estate is low liquidity, while buying and maintaining it requires serious sums of money.

Commodities

Commodities are goods used everywhere that can be bought at an exchange: oil, silver, gold, wheat, paper, coffee, etc. These are material goods, whose price is also set by the market.

The disadvantages are as follows: the demand for commodities is prone to various risks, including economic and geopolitical crises. Also, the asset does not generate any dividends.

Non-material assets

This type includes everything non-material that can be monetized: patents, intellectual property, brands, copyright, knowledge of foreign languages, even acquaintances and connections. These assets form passive income and facilitate more efficient use of other resources.

Disadvantages: receiving non-material assets requires time and effort, and conversion to cash is complicated.