Having cash is not the only way for a person to have wealth and some worth in the market. There are several different assets which a person may own. All of these increase the worth of an individual and their wealth. A person’s net worth can be determined by the assets that they have. But net worth does not only come from the assets a person owns. Instead, they are a sum of assets, net income, and every other kind of savings that a person may have which can be sold to determine the worth of a person. All assets may not be investable.
Investable Assets Explained
Anything which is purchased by the person in order to generate income immediately or even in the near future is considered as investable assets. There are many things which may be bought, and then kept for some time and after their worth increases they are sold out. Common examples are cash, stocks, shares, gold, silver, oil, bonds, and even savings accounts. There are some other things which may be considered as an asset even though they may not seem like. For example, people who love to collect train models might sell their vintage train collections after many years for a high price.
All the assets either increase in value with the passage of time or its price increases. There are some assets in the market which have an increase in both its price and value.
In order to understand investable assets better, it is important to understand the term liquidity first. By the term liquidity, any asset is implied which is sold off quickly and can be easily converted into cash. It requires not a large amount of cash to do so either. One of the biggest liquid asset is cash. It is available to be spent at any time in any place. On the other hand, if a person has a property as an asset, it is not able to sell quickly. It will not be sold immediately hence it will take a long time before it can actually be spent on something. Such assets are illiquid assets. Similarly, shares can be liquid or illiquid. Those shares in any organizations which can be sold off easily are liquid while others which take a large time to do so, are illiquid.
Calculating Investable Assets
The investable assets mostly remain the same. Even though the net worth may change from time to time but the investable assets are less likely to change with the passage of time. In order to calculate the investable assets an individual owns, the following formula can be followed:
Assets= networth + liabilities
Through this formula, an individual can easily calculate the assets that a person may have. It is basically the sum of net worth and liabilities that an individual might owe.
What Assets Are Investable Assets
It is of utmost importance that a person knows the worth of their assets at all times. This is because in case of an emergency if a person wants to sell something and receive cash on an urgent basis, they know where they can arrange it from. Value of assets keeps on fluctuating. Sometimes, they can be higher while at other times they may be lower than expectations. This is why it is important to know every detail about investable assets, their market worth, and overall the cash that could come in by selling off the asset.
Importance of Investable Assets
In order to get a better financial understanding, financial advisors go through the financial assets that an organization owns. This gives them a better idea of an individual finances. Through this idea, they are able to direct individuals better for future financial decisions. By having multiple investable assets, banks are more likely to find the individual trustable. This will allow them to take on new loans and debts if need be. A person with good investable assets is more likely to pay back their loans instead of a person which has nothing in their hands. Moreover, the overall wealth of an individual can be calculated and understood through the investable assets. They secure the future of an individual and provide them a cushion for future expenses and endeavors.
Is Net Worth and Investable Assets Same?
There are many people who use investable assets to measure the net worth of a person. But it is not an accurate method to do so. This is because the investable assets may be less than the total net worth of a person. Net worth also includes the deducted amount from total assets which an individual might owe another person. If an individual sold everything they have and at the same time have no pending payments or loan, then that amount will be the net worth of their things.
On the other hand, investable assets are a part of the total worth of an individual. Even if they are completely sold off, some amount can still be pending in the net worth of an individual.
Even though investable assets may seem like total net worth, that is not the case. There is an obvious difference between the two which needs to be understood. Through this, better financial decisions can be made for the future. All individuals must be aware of their worth so that in the times of need in the coming future, all confusions can be avoided and maximum worth can be reaped easily.