In my previous post, I mentioned assets but I didn’t properly explain what they are, other than to say that they are:
things that have a financial value attached to them that we can generate an income or a profit from.
Examples of assets might be collectibles such as paintings, antiques, fine wines, classic cars, etc.
These are the kind of assets that don’t usually generate an income but will hopefully increase in value over time so that you can make a profit when you sell them.
Of course, there is no guarantee that it will increase in value but the skill of the investor is in working out which things are most likely to increase in value over the particular period of time that you are deciding to buy it and hold onto it.
Examples of non-collectible assets (and the type that we are more interested in) are financial assets such as companies, investment trusts, unit trusts, exchange traded funds (ETF), corporate bonds, government gilts, etc.
You’ve probably heard of some of these before and you might not be too sure about what they are.
If so, there’s no need to worry about that now, its early days yet.
The only thing we need to understand at this point is that these are all financial assets.
What I mean by that is that you can buy them, own them and sell them, just like the collectibles, but all you will have is a financial statement or certificate or piece of paper to say that you own it.
You can’t physically touch it or admire it like you can a painting or consume it like you can a vintage bottle of wine.
In other words, there’s no way of deriving any pleasure from the asset itself other than potentially making money from it.
Hence the term, financial asset.
Sounds a bit dull and boring doesn’t it, compared to a fine wine or special painting.
However, financial assets do have their advantages, as we will discover next time.
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