An asset is simply any fixed or variable financial obligation that a firm owns or holds. It may be in the form of cash, accounts receivable, accounts payable, fixed assets, goodwill items, and other financial instruments. Basically, anything that can be legally liquidated can be put into an asset category. There are many different classifications of asset classifications that investors will be interested in pursuing, however it’s important for every investor to understand exactly what those classifications are and what kinds of assets lie in those respective groupings. There are five major asset categories on which all financial instruments fall under; equity, fixed income, intangibles, tangible fixed assets, and liability securities. There are also several sub-asset categories as well.
Equity: This is the most basic asset class and it’s the backbone of all others. Stocks, mutual funds, bonds, and several other forms of equity exist. When discussing stocks, it’s important to remember that stocks aren’t always equities, as some can be debt instruments.
Fixed Income: This is where income producing assets are held. A bond is usually included here as well as treasury bills and mutual funds. A mutual fund is usually a collection of stocks, bonds, and other income producing assets. When discussing fixed income, it’s best to remember that all of these investments come with risk, so only the best deals are pursued and looked at.
Intangibles: These are basically any financial asset or liability that can be converted into cash. Examples include foreign currencies, insured deposits, U.S. Treasuries, corporate bonds, and other securities. Real estate investment trusts (REITs) are another type of intangible asset. These investments like stocks, bonds, and other securities can be converted into cash when an investment occurs. However, not all types of securities may be traded in this manner, so you should research these thoroughly before making any type of decision.
Commonly-Owned Assets: These are assets that a company owns, such as common stocks, preferred stocks, and other ownership stocks. Examples include trademarks, preferred stock dividends, original equipment, and other long-term assets. In general, common stocks are the most easily-liquidized asset classes. Long-term tangible assets like real estate and franchises take time to depreciate in value and are usually less liquid. Examples of commonly-owned intangible assets include patents, technology, and trademarks. This is also the case for many companies, as most have numerous common shares listed on their balance sheets.
Blue Chip Stocks: These asset classes are held by large companies with strong reputations. They’re considered to be among the safest investments available, since there’s very little likelihood of a company defaulting or bankruptcy. Examples include Microsoft, Cisco, General Electric, and JP Morgan Chase. These stocks are regularly priced at bargain prices, which gives investors an excellent opportunity to purchase shares at a low price and then resell them for a higher profit. The vanguard dividend reinvestment program targets blue-chip stocks, and the returns can be very impressive.
Peer-To-peer Lending: This asset class refers to any company that issues credit directly to borrowers. Typical examples are small lending institutions such as local banks and credit unions, who provide personal loans with high interest rates to individuals. Some peer-to-peer lending companies also issue credit cards, which are issued directly from the company’s website. These companies usually do not operate within a traditional financial institution system, instead contracting with individual consumers. A peer-to-peer lending company normally has minimal operating expenses and receives profits from its interest rates. Because of this potential for profit, it has been a popular option for income producing assets such as properties and art.
An ultimate guide to investing in real estate is education. Make sure you understand the risks associated with each asset category, and seek out professional advice on which investments are best suited for you. A financial advisor can help you evaluate your financial situation and present you with a solid investment portfolio. If you don’t know anyone who can give you reliable advice, consider seeking out a discount broker in your area. Brokers earn a commission on each property they sell, so they are motivated to help you achieve your long term financial goals.