A Beginner’s Guide to Assets: What You Need to Know
It is important for everyone to have a diverse set of assets for numerous reasons. Assets can be useful when trying to get a loan and securing your financial future. This article will go into detail about what assets are, why they are important and everything else you need to know. The sooner you start getting this information, the easier it will be to meet your financial goals.
What are Assets?
Simply put, an asset is anything valuable that you own. It could be a car, boat, stocks bonds, a house or a pair of diamond earrings. For investors, stocks are among the ultimate assets to have. It all depends on your particular situation. If you own a transportation company, having an entire fleet of vehicles is certainly an asset.
Types of Assets
There are different categories of assets that you should take the time to look into and understand, including:
- Home: A house is one of the most valuable assets the average person will ever own. Homes tend to appreciate over time, which means that they increase in value. This is especially true if you maintain and make improvements to your home over time. It is the ultimate long-term investment.
- Commercial Properties: There are also commercial properties, which are huge assets for real estate investors. Some properties are obviously more valuable/profitable than others.
- Bank Account: Even a simple bank account can be a significant asset, depending on how much money you have in it. It can be a checking account or savings account. Money market accounts also count as assets.
- Vehicles: A motor vehicle such as an SUV, pickup truck or sedan can definitely be an asset. Unlike homes, these assets depreciate over time. In fact, the value of your vehicle decreases significantly the second you drive it off the lot. This isn’t to say that owning a car is not a good thing for a number of reasons though.
- Investment Portfolio: There are many different types of investments that can make up an investment portfolio, including stocks, funds, bonds and others. Invest securities are widely regarded as one of the most valuable investment assets in existence.
- Precious metals: Certain metals like gold and even silver can be highly valuable assets. The value of gold has been high for quite some time now, and that most likely won’t change anytime soon.
- Life insurance policy: A person’s life insurance policy can be a significant asset as well. Once the policy holder dies, their beneficiaries collect the money that has accumulated over time.
Calculating Your Assets
It is a good idea to spend some time calculating your total financial assets so you can determine your net worth. Make sure that you factor in all of the items listed above to get a full and accurate accounting of your total assets. If you don’t know exactly how much your home is worth, take a look at similar houses in your area to get a rough idea. You will also need to factor in money you owe for things like loans, back taxes, credit cards, and any other form of outstanding debt.
Why is Asset Diversification so Important?
You should try to diversify your asset portfolio as much as possible, as it is good for your overall financial well-being. It can put you in a much better position for obtaining a loan or just getting by when things are tough for you financially. Lenders tend to favor applicants with a diverse portfolio, so you’ll need to keep that in mind.
How to Diversify Your Portfolio
When you set out to diversify your portfolio as effectively as possible, there are a few key things to keep in mind. You need to make it a goal to have different types of assets (vehicle, house stocks, etc), as well as diversification within each category. For example, it’s not enough to just have one type of investment. If you really want to create a strong portfolio, you should have numerous types of investment across the board. This means stocks, bonds, funds, and other things that could be profitable in the short and/or long term.
Most people have at least one or two assets, but it’s important to aim for accumulation and diversification. The more and different assets you acquire, the stronger your financial situation will be as a whole. Keep in mind that there are many different types of assets you can get. It is crucial that you take the time to figure out which assets you currently have and what your net worth is. This will give you a good place to start. As you begin to acquire new assets, you can recalculate your net worth to measure your financial progress.