Spend any time reviewing personal finances and you will likely see the terms assets and liabilities. These terms explain what you own, what you owe, and how money moves in and out of your life. Together, they shape your net worth.
One area to focus on and continually grow is your assets because they add value to your net worth. Here is a breakdown of what they are and how they work.
What Are Assets?
Assets are items you own that have monetary value. To calculate your net worth, you need a general idea of what you own and what those items are worth. An example of an asset would be your bank account. If you happen to have a vacation home or collect rare baseball cards, those are considered assets, too.
How Are Assets Categorized?
Assets generally fall into three categories: real assets, intangible assets and financial assets. Here's a rundown of each.
Real Assets
Real assets, also called tangible assets, are items you can physically touch. They have value because of their physical properties.
Examples include:
- Homes
- Land
- Cars
- Jewelry
- Fine art, wine, or collectibles
- Gold or other precious metals
For many people, a home, car, and bank account make up a large portion of their assets. Other items, such as collectibles, heirlooms, and fine art, may increase in value over time with proper care.
Liquid vs. Non-Liquid Real Assets
Some assets are easier to convert to cash than others.
| Type | What It Means | Example |
|---|---|---|
| Liquid Assets | Can be converted to cash quickly with little impact on value | Checking and savings accounts |
| Non-Liquid Assets | Harder to convert to cash or may lose value during the process | Home |
Intangible Assets
Intangible assets have value but no physical form.
Examples include:
- Patents
- Intellectual property
- Copyrights
- Trademarks
For example, a business owner with a registered trademark owns an intangible asset. While you cannot physically hold these assets, they still carry value and often require legal protection.
Financial Assets
Financial assets derive their value from a contractual right or ownership claim. Common examples include:
- Cash
- Checking and savings accounts
- Stocks
- Mutual funds
- Bonds
- Certificates of deposit (CDs)
Many people hold financial assets in retirement accounts such as a 401(k) or individual retirement accounts (IRA).
Liquid vs. Non-Liquid Financial Assets
Financial assets can also be liquid or non-liquid.
- Liquid Financial Assets: Checking and savings accounts
- Non-Liquid Financial Assets: An IRA, since early withdrawals before age 59½ may result in penalties
Life insurance can also be a financial asset. If your policy includes a cash value component, it may carry financial value. A financial representative can explain how this applies to your situation.
In general, assets can consist of real (such as land), intangible (such as copyrights, patents) and financial assets (such as stocks, bonds, mutual funds). Understanding how these categories work can help you organize what you own and evaluate your overall net worth.
Not Everything You Own Is an Asset
When reviewing what counts as an asset, remember that not everything you own qualifies.
For example, you may have spent several thousand dollars on a home theater system. It may have provided years of enjoyment, but electronics lose value over time. Because of depreciation, your television and speakers may eventually have little to no resale value.
Compare that to a gold coin collection, which may increase in value over time.
As you review your budget and retirement goals, separate:
- Items that may grow or hold value
- Items that are likely to lose value over time
This can help you focus on what contributes to your long-term net worth.
The Benefits of Diversifying Your Assets
Knowing the difference between real assets, intangible assets, and financial assets can support your long-term goals. One reason it matters is diversification.
If most of your holdings fall into one category, your portfolio may face more risk. For example:
- Owning only bonds could expose you to losses during a financial crisis
- Holding only one type of financial asset may increase vulnerability during market downturns
The same is true for your financial assets. A diversified portfolio spreads investments across different asset types, such as:
| Asset Type | Example |
|---|---|
| Stocks | Individual stocks or stock funds |
| Bonds | Government or corporate bonds |
| Cash | Savings or an emergency fund |
Diversification cannot guarantee a profit or prevent losses. However, combining different types of assets may help you better manage market swings and challenging economic periods.
The Bottom Line
Understanding what qualifies as an asset and how different types work can give you a clearer picture of your overall financial position. By identifying which items hold value, which may grow over time, and how they fit together, you can make more informed decisions about your net worth. Taking time to review and diversify your assets can support stronger long-term financial stability.
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