Table of Contents
What does an Asset mean?
Something is an asset if it can be turned into cash when needed. A person, a company, or the government can own an asset. What are the different kinds of assets?
a. Real estate
Property is land or a building that is owned as real estate. The rights to a movie, play, song, or book are also considered property these days. The newest thing is sports events that can bring in money for free, like the NBA, where Mark Cuban owns the Dallas Mavericks.
b. Art Pieces
Work by a well-known artist, a figure by a well-known sculptor, or an old item that someone owns but doesn't know how much it's worth can all be very valuable. These kinds of works of art can be very valuable.
c. Stamps, coins, and documents that are rare
People often collect these as a hobby. Most people start collecting these things because they are fun to look at. They trade one piece for another based on how much they think it's worth. Usually, collectibles are things like old coins and cards.
Documents made by famous people are worth a lot, but most collectors or their legal heirs don't know how much they are worth. Most of these expensive things are in a locker or a cupboard, and the owner doesn't know how much they're worth. There may also be first editions of books by well-known authors in this group.
d. Precious Metals
Most eastern countries store their hard-earned money in gold or silver because these metals are a great way to protect against inflation. People in India are used to very high consumer price increases, so they store their money in gold. This is because it is easy to turn gold into cash or use it as collateral to get a loan for cash.
e. Financial Assets
These are things like fixed deposits, debentures, bonds, and stocks that are kept in the form of money. In these types of assets, money goes from a saving to a person who needs the money and can put it to good use by investing it. So, the investment helps bring more money into the economy as a whole. The net worth of a person or company is found by taking their debts away from what they own.
What's the difference between things that are liquid and il-liquid ?
Assets can be put into two groups based on how long it takes to turn them into cash or a cash-like asset.
1. Liquid assets
These kinds of assets can be turned into cash or cash equivalents quickly and with little or no loss in value. The biggest problem, though, is that there isn't much room for capital growth in this class of assets, which is what an owner needs to do to beat inflation over long periods of time. The foreign exchange market is the most popular type of asset that can be sold quickly.
The most common liquid investment for small investors in India is the simple fixed deposit, where the bank will return the principal to the small owner whenever they want. Loss can only happen if the business closes or pulls out too soon. When it comes to fixed deposits, the interest rates that banks offer are much lower than India's consumer price growth. Because of this, people who keep their money in fixed accounts lose the ability to buy things.
On the other hand, you can get your money back in three days after putting in a sell order with your broker for shares of stock or mutual funds. There are no guarantees that money spent in the stock market will make money.
2. Illiquid assets
They are different kinds of things that can't be turned into cash quickly. These kinds of assets are called "illiquid assets." You can get cash in exchange for an item that is hard to sell. When a small investor tries to sell an asset that is hard to sell, the value of the asset quickly drops by a large amount. Some examples of illiquid investments are real estate, precious metals, jewellery, and works of art. The main benefit of an object that is hard to sell is that it can be used to protect against inflation.
How would you put stocks into groups? Can you explain?
There are parts of both liquid and illiquid assets in an investment in stocks. Ownership of shares of stock can be quickly turned into cash or its equal. The money will be put into the investor's account three days after the sell order is placed. It's important to remember that investing in stocks is risky and that the prices of shares change a lot.
If an investor puts money in at the wrong time in a business cycle, they could lose their money. If the trader has kept his money in the stock market for more than five years and followed the basic rules, he should be able to get returns that are higher than inflation. When an owner has put money into a good company for more than three years, he or she is less likely to lose their money. As a percentage of the money spent in the first few years, the dividends are a very small return.
Investing in stocks is like a double-edged sword: if you do it carefully and wisely, you can beat inflation by a huge amount. Over a number of years, he makes a lot of money for his formal heirs. On the other hand, an owner runs the risk of losing all of his money. This happens if the money is spent without thinking and the investor doesn't understand how the business he invested in works and how it fits into the economy as a whole.
What do "intangible assets" mean?
Most of the time, assets that can't be seen or touched are called "intangible assets" or "intangible capital." Most of the time, these are things like names, software, and intellectual property rights that have been patented. They are a good and useful way for the company or person who owns them to make money. Some intangible assets, like inventions and films, are usually made with a single investment of cash. For example, we still have to pay to watch Mickey Mouse, Donald Duck, or Tom and Jerry 50 years after they first came out. So, every time someone watches the show, the company that owns the rights makes money.
On the other hand, a scientific process or piece of software can be sold as a "pay per use" deal. This means that the customer pays for it every time he uses it. For a company like Coca-Cola, a competitor could make a similar-tasting product that would be hard for a customer to tell apart. Because he doesn't own the brand name "Coke," the maker of the new drink will never be able to sell as much of it as Coke.
FAQ
How does the saying "The rich get richer and the poor get poorer" apply to having assets?
The main difference between the wealthy, the middle class, and the poor in any society is who owns the most assets. In a country like India, consumer price inflation is much higher than usual, averaging around 10% except for a few short times. Because of this, the value of our currency keeps going down. Because of this, the prices of hard assets like real estate, valuable metals, and stocks grow at a rate that is much faster than the rate of inflation.
In India, where I live, more than two-thirds of the people do not own any real land, precious metals, or financial assets. Because of this, inflation ends up giving money from the poor to the rich.
Also, in our society, people who own assets like real estate or gold can use them to get money when they need it, either for personal use or for business. When real assets are available, institutions will send money to buy them. This makes the owner of those assets richer. The middle class and those with less money are not able to get this cash, so they stay poor.
