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Assets: The building blocks of a portfolio

An asset is an item of economic value that can be converted into cash.

Assets likely to be held by private investors include: cash in bank deposits, securities (such as shares issued by private companies, and government or corporate bonds), property, insurance policies, foreign currencies, cars, art and antiques.

Company assets include plants and machinery, and intellectual property.

Different assets have different characteristics. Variables include:

  • Liquidity – how easily can the asset be converted into cash?
  • Rate of return – does holding the asset generate a cash income? Gold bars don’t give you an annual income. Shares in a large-cap diversified mining company typically do.
  • Potential for capital appreciation – stocks and property tend to rise in value over time. Cash does not.
  • Volatility – how does the asset’s value fluctuate over a given time period?

An investor’s requirements regarding these different characteristics will determine which assets are most attractive to him or her.

See more financial terms in the Monevator glossary.

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