Asset definition

What is an asset?

A financial asset is something that holds value and which can be bought and sold freely between investors. Usually, an asset represents a claim of ownership or will provide income. They can be bought, sold, or traded in financial markets.

 

Different types of financial assets

Here are some common types of financial assets.

Cash: this includes physical currency (banknotes and coins) and bank deposits. Cash is the most liquid financial asset because it can easily be used to buy other assets.

Stocks: stocks represent ownership in a company. Stockholders have a claim on the company’s assets and earnings, and they can receive dividends and earn capital gains on their investment. You can buy stocks in companies one at a time, or you can invest in a group of companies with a single investment by investing in funds.

Real estate: this includes things like houses or office space. You can ‘park’ your money in these assets and wait for their market value to go up, or you can rent them out to produce an income. Real estate investment trusts (REITs) are another way to invest in real estate, without having to own physical property.

Commodities: commodities like gold, oil, and agricultural products can be traded as financial assets. These are often used to diversify an investment portfolio, or to provide protection against things like inflation. A financial asset that provides protection in this way is referred to as a ‘hedge’.

Debt: it might sound strange, but debt can be an asset. Debt securities are essentially loans made by investors to governments, corporations, or other entities. Examples of debt securities include bonds. Investors that hold debt securities are typically entitled to regular interest payments and the return of the principal amount at maturity.

Bank deposits: money held in bank savings accounts is considered a financial asset. It earns interest over time.

Collectibles and art: high-value collectibles, such as rare stamps, whisky, coins, and artwork, can also be considered financial assets. Their value can go up over time, but they’re not ‘conventional’ investments like the others on this list.

 

Assets play a crucial role in financial markets because they give retail investors like you, businesses, and financial institutions the ability to generate capital gains over time. Deciding which financial assets to invest in depends on your goals, attitude towards risk, and the length of time you’re looking to invest for.

Diversifying your investments across different types of financial assets (like stocks, bonds, and property) can help spread risk and optimise your returns.

 

Investing should be long term (min. 5 years). The value of your investments can go up and down, and you may get back less than you invest.