Demystifying Investable Assets: What You Need to Know | INVESTEDMOM
What is an investable asset anyway? In order to plan your financial future and build lasting wealth, you must have a working understanding of investable assets. Your assets are the foundation of your financial well-being, driving your ability to reach your goals and achieve your dreams.
This article will demystify investable assets, helping you understand their types, unique characteristics, and walking you through calculating them. We'll also explore strategies for beginning, growing, and protecting these assets while addressing some common myths that hold people back from investing, and looking at tax implications. So, let's begin by defining what investable assets are and why they matter.
What Is an Investable Asset?
Investable assets refer to a variety of financial resources that can generate income or appreciate in value over time. These assets represent your financial firepower, your ammunition for creating wealth and achieving your financial goals. Think of them as tools you can leverage to secure your future and live the life you desire.
For better understanding, let's divide investable assets into categories, each category with unique features and benefits. Using this classification, we can take a closer look at the different types of investable assets to see which ones may fit best into your financial plan.
Types of Investable Assets
Liquid Assets: You want some resources that can be converted into or accessed as cash quickly, or that are liquid. These include things like cash, savings accounts, and money market funds.
Marketable Securities: These are financial mediums that can be easily and quickly bought or sold on the market, such as stocks, bonds, and mutual funds.
Real Assets: Also known as physical assets, these carry inherent value and include tangible things like real estate properties, precious metals, and collectibles.
Alternative Investments: As the name suggests, alternatives are less traditional and require a higher level of knowledge to navigate. Think hedge funds, private equity, and cryptocurrencies.
Characteristics of Investable Assets
To understand what makes investable assets unique, we'll look at particular traits that help make the most of your money. Some characteristics of assets are how quickly you can access your money, how much risk your investments come with, and ways in which you can spread your money around to keep it safe. Let's break down each of these characteristics so you can use them to your advantage in managing your wealth.
Liquidity: How easily an asset can be converted into cash without significant loss in value is what is meant by liquidity. Liquid assets like cash and savings accounts allow you to use those funds whenever you want. An asset that is illiquid will take time to sell.
Risk and Return: Every investment, no matter what kind, has a trade-off between risk and return. Generally, when we think of higher-risk investments, the trade-off is a potential for greater returns, and vice versa. Market conditions, economic trends, and asset types influence risk and return.
Diversification: Diversification is a strategy that involves spreading your investments across various asset classes to reduce risk and enhance overall portfolio stability. Implementing asset allocation and choosing different investment vehicles can aid in diversification.
Calculating Investable Assets
Now that we've explored the types and characteristics of financial assets, let's dive into the practical aspect: how to calculate investable assets. This calculation involves adding up the total value of financial resources you can readily invest or use for future financial goals.
Start with your liquid assets: savings and chequing, money market accounts, or cash. Add any marketable securities (stocks, bonds, or a mutual fund) you have that can be accessed quickly. Include the market value of any real assets you may have, such as real estate investment properties or valuable physical items. Remember to consider alternative investables like cryptocurrency.
Remember that the value of assets can fluctuate over time, so it will be necessary to update this calculation periodically so that it accurately reflects your current financial situation.
Tracking and Valuing Assets
To effectively manage your investable assets, you first need to understand the difference between market value (current worth in the market) and book value (the original purchase price). Then, you need to be able to track those values.
There are various tools and resources able to help you determine the current value of your assets. You can also consult with financial advisors who are experts in specific types of assets. It's a good idea to reassess these values periodically as you track the growth of your net worth.
Online real estate evaluation tools like Zillow or Redfin provide quick estimates of your home's worth and can be enhanced by a report from a professional home appraiser with more accurate figures as needed.
Personal finance software like Quicken, Mint, or Personal Capital can help you track the current values of your financial accounts, including bank accounts, investments, and retirement accounts. These different programs sync with your accounts to provide up-to-date information. It's also a good idea to keep track of account statements from your financial institution.
Building and Growing Investable Assets
Now that you know how to calculate your investable assets, it's time to explore strategies for building and growing them.
Setting clear financial goals provides direction and purpose for your investments. Whether short- or long-term, make them SMART (Specific, Measurable, Achievable, Relevant, and Time-bound).
Budgeting and saving are fundamental steps in building investable assets. Develop a budget that outlines your income, expenses, and savings goals. Build additions to your investable assets into your budget. Don't forget the emergency fund; this provides a financial safety net to handle unexpected expenses without compromising your other investments.
Implementing effective investment strategies is crucial for growing your wealth. Dollar-cost averaging involves investing a fixed amount at regular intervals, reducing the impact of market volatility. Asset allocation helps diversify your financial portfolio by allocating assets across different categories, such as stocks, bonds, and cash.
Protecting Investable Assets
While you're building and growing investable assets, protecting them from unforeseen events is equally important. Insurance plays a vital role in safeguarding your assets.
Health insurance shields your assets by covering medical expenses and granting you access to quality healthcare without draining your savings. Life insurance acts as a safety net for your loved ones in the event of your passing, ensuring they have security and don't face financial hardship. A home insurance policy protects your physical assets from potential damage, theft, or other unforeseen incidents.
Estate planning involves legal documents such as wills and trusts that specify how your assets should be distributed in the event of your death. Strategies for minimizing taxes and ensuring a smooth transfer of wealth are also part of estate planning. This is an essential way to protect your assets beyond your lifetime.
Common Misconceptions About Investable Assets
Some common misconceptions may be holding you back from taking advantage of your investable assets and using them to build personal wealth. You have likely thought of one or more of these yourself.
"Only the Wealthy Can Invest": Investing is not exclusive to the wealthy. Anyone, regardless of income, can start investing and building wealth over time.
"Investing Is Too Risky": While investing carries some risk, there are strategies to manage and mitigate it. Once you understand your risk tolerance, you can make informed and profitable investment decisions that align with your comfort level.
"Investing Is Overly Complex": Investing only needs to be complex if you choose for it to be. There are many straightforward investment options that are suitable for beginners.
Tax Implications of Investable Assets
When managing your investable assets, understanding taxes is a vital part of the equation. This knowledge is key to making the most of your returns. One important tax to keep in mind is the Capital Gains Tax, which you pay on the profit you earn when you sell investments. Keep track of the tax rates associated with capital gains and explore strategies that can help you minimize this tax burden.
Savings accounts like 401(k)s and IRAs can also be valuable in minimizing taxes. These accounts offer attractive tax benefits and incentives, especially when building a retirement fund. They can be powerful tools for building your financial future while keeping your tax liability low.
Look for tax-efficient investment strategies to help maximize the returns you keep after taxes. Consider consulting a knowledgeable financial advisor who can implement these strategies in your portfolio.
In conclusion, investable assets are the building blocks of your financial future. They encompass a wide range of resources that can appreciate in value, generate income, and secure your wealth. Take control of your financial destiny by understanding the types and characteristics of these assets and strategies for managing them.
As you embark on your journey to build financial assets, remember to set clear goals, budget wisely, and protect your assets through insurance and estate planning. Don't be deterred by common misconceptions about investing; it's a path open to everyone. And finally, be mindful of the tax implications of your investments to optimize your returns.
With proper knowledge and firm strategies, investable assets lose their mystery, and now you're ready to pave the way to a bright financial future. If you're eager to learn more about this topic, stay tuned for my upcoming book, Wealth Building Framework. I'm excited to provide a resource with in-depth insights into mastering your personal investment strategies and achieving lasting financial success.
Meet the Author:
Inge was born and raised in Cape Town, South Africa, and moved to Canada in 2010 looking for a better life. She always had an entrepreneurial spirit and started her first side hustle when she was 9 years old – selling fudge at school during lunch breaks.
It wasn’t until much later that she realized that saving isn’t enough to get ahead. She was always very interested in real estate, but saving up for a down payment was grueling and slow, and the demands of life kept getting in the way.
She started investing in herself and upgrading her skills while learning how to invest. She quickly became debt free and compounded her money at a staggering rate.
It wasn’t until she became a coach that she realized how significant an impact she can make in people’s lives by sharing her journey, learnings, and processes.
So here she is, advocating for everyone who is invested and wants to build their wealth, especially the mommas!