Assets, Investments and Loans- A Detailed Overview
An asset is anything of value that can be converted into cash. Assets are owned by individuals, businesses and governments.
An asset can be cash or cash equivalents, real property, personal property or investments.
Types of Assets
- Liquid Assets: these include the assets such as stock, government bond etc. that can be quickly converted into cash with little to no effect on the price received.
- Illiquid Assets: these include those assets which undergo some loss when converted into cash. For example, houses, antiques etc.
Essentially, your net worth is said to be positive when the value of your assets exceeds that of your liabilities; assets being something you own and liabilities that you owe.
An investment is an asset that is purchased in hope that it will generate income in the future or be sold at a higher price.
In economic sense anything with the hope of a financial gain can be an investment like building a factory to produce goods or studying in a university.
But in financial terms it is strictly a monetary purchase of assets like stock, bonds or real estate property.
Types of Investments
- Ownership Investments: these include all the monetarily purchased assets. They are the most profitable and volatile investments.
- These are the certificates ownership of a company’s portion of value. You get profit from it on the basis of how the market values your asset.
- It has the highest potential of profit returns but also holds the highest market risks.
- Real Estate. Houses, apartments and lands purchased to rent out, sell etc. are investments.
- Precious Objects. Noble metals like gold and collectibles like antiques or famous paintings fall under this head.
Lending Investments: these investments are less risky than ownership investments and also return less profit.
- Savings Account. They are totally risk free, although the returns are very low.
- They include investments from CDs and Treasuries to Junk bonds and international debt issues. Risks and returns vary widely.
Cash Equivalents: these investments are very easily convertible into cash.
Money Market Funds. The risks as well as the returns are very low. Returns are as small as 1-2%. They are more liquid than other investments.
Loan is the act of giving money, property or other material goods in exchange for future repayment of the principal amount in addition of a suitable interest.
It can be specific one-time amount or an open-ended credit up to a fixed limit amount. Loans generally have legal stipulations such as the length of time before the recovery of loan and the maximum chargeable rate of interest.
Loans can come from government, individual, financial institutions or corporations. It is the primary source of revenue for banks and some retailers through the use of credit facilities.
Types of Loans
- Personal Loans: offered by most banks and can be for almost anything.
- Credit Cards
- Home-Equity Loan: loan taken against the value of one’s house
- Home-Equity Credit Line: revolving credit against home equity
- Cash Advances: short term loans offered by credit card companies.
Small Business Loans: loan granted to would-be entrepreneurs by SBAs or local banks