Investments are assets, and an asset is a resource you own that you expect to increase in value. When you own a lot of assets, then you’re talking about asset classes, which mean that you’ve grouped investments by similar traits. And if you want to refer to all your assets in general, you refer to your portfolio. Incidentally, you’ll also frequently come across the word “holdings,” which are basically assets that you hold in an investment portfolio.
In fact, the list of assets you can invest in is limitless. You can speak of your home as an asset, your precious metals as an asset, your jewelry as an asset, and your stocks as an asset. Let’s take a look at each one of these examples to get a better understanding of what it means to invest in an asset.
- Your home as an asset.
Your home may or may not be an asset. If you’re still paying the mortgage before you can have full ownership of it, then it’s more accurate to say that it’s a liability. It’s not an asset because money is coming out of your pocket, rather than going into it. However, there will come a time when you will own the house free and clear. It then becomes an asset—because it can start to make you money. You could, for example, rent it, which would put money into your pocket. You could also add value to it by improving the house and then selling it at a higher price than you paid for it. For instance, if you research solar energy, perhaps becoming interested in it after reading ION Solar Reviews, installing solar panels will increase the value of your home. In fact, the more home improvements you make, the more you increase the value of your home. Your solar panel installation, for instance, increases the value of your home because it decreases the homeowner’s power bill.
- Your precious metals as an asset.
In times of economic turmoil, your gold coins will keep their intrinsic value. Many financial experts recommend adding gold and silver to a portfolio to keep it balanced arguing that should the value of the dollar decrease, your gold and silver will keep its value. An article in Forbes, Investing In Precious Metals, explains “Holding metals is a way of spreading portfolio risk during times of economic upheaval and war, and when inflation threatens currency values. To many people in this uncertain environment, buying metals represents a safe-haven approach to diversification and a partial hedge against equities.”
- Your jewelry as an asset.
Is your jewelry really an asset or merely an accessory? It depends on its materials and design. If the litmus test of an asset is how much it can be liquidated for than your jewelry is worth what you can get if you sold it at a fair market price. So if it’s made out of gold and diamonds, then it’s going to be worth more than if it were custom jewelry made out of cheaper materials. The design also plays a role in determining value. A cut and polished diamond is considered more valuable than an uncut one.
- Stocks as an asset.
From your perspective as an investor, a common stock is an asset. However, from the perspective of the issuer, the stock is considered equity, even debt. So it all depends on the lens you are looking at it. When you own common stock, it shows that you have some ownership in a company. This means that you will share the rise and fall of the company’s fortunes. As an owner, you will receive any dividends paid out by the company. If the company does something amazing, say, develops a new product line that increases its sales and its profits, then the dividend and the stock prices will increase, too, which, of course, will increase the performance of your investments.
In closing, it’s important to bear in mind that sometimes the word investment as assets are misused in common language. For instance, a car salesman might refer to the Mercedes-Benz E-Class Estate that you are eyeing in the showroom as an asset and talk about how it’s a great investment, but, in fact, it’s neither an asset nor an investment. Once you drive it off the lot, its resale value will immediately fall. Additionally, you will be paying for it over a long time. In short, it may look like an asset, i.e. something of great value, but in truth, it’s a liability because money is coming out of your pocket.