What Are Investable Assets And How Can You Build Yours?

Most individuals consider their homes as their largest and most valuable investment, forming a significant portion of their net worth. However, it is important to note that homes are not actually considered investable assets. Investable assets consist of both liquid and non-liquid assets. Essentially, these are the assets you possess before selling any possessions or properties.

In this article, we will explore the importance of investable assets, provide examples of what they entail, and offer tips on how to begin building your own!

Why Are Investable Assets Essential?

To achieve financial success and freedom, having investable assets is imperative. The focus lies in possessing assets that appreciate over time. These assets include cash, stocks, bonds, and other financial products such as mutual funds.

By having these assets in your portfolio, you ensure that you have sufficient funds available to invest when opportune moments arise.

Furthermore, investing your money wisely is key to wealth accumulation over time. The sooner you begin investing in retirement or other long-term goals, the better your financial standing will be in the future!

Examples of Investable Assets

Investable assets should be easily liquidated. Here are some examples to provide a clearer understanding:

Cash, Checking, and Savings Accounts

Cash is the most liquid form of currency, readily available for immediate purchase of goods and services. Checking accounts provide easy access to cash, enabling check-writing and debit card usage. Savings accounts, however, allow individuals to accumulate savings over time.

Stocks, Bonds, and Mutual Funds

Stocks represent ownership shares in companies. When you invest in stocks, you become a partial owner of those companies, entitled to profits and assets.

Bonds, on the other hand, are loans made by companies or governments. They involve lending money in exchange for interest payments over a specific period.

Lastly, mutual funds are investment funds comprising various stocks, bonds, and securities. This offers investors the opportunity to invest in a diverse range of securities simultaneously.

Retirement Accounts and Trusts

When planning for retirement, various types of accounts and trusts can be utilized to save for the future.

One popular option is the Roth IRA, which allows tax-free savings and withdrawals during retirement. Additionally, the 401k enables tax deferment on income until retirement.

Different types of trusts, such as irrevocable trusts or charitable remainder trusts, can also prove beneficial for retirement planning.

CDs and Money Market Accounts

Both money market accounts and CDs (Certificate of Deposit) serve as savings vehicles offered by banks and credit unions to grow money more rapidly than traditional savings accounts.

CDs often offer higher interest rates due to the requirement of maintaining money in the account for a specific duration.

Calculating Total Investable Assets

To determine net investable assets, simply sum up all liquid and near-liquid assets, such as stocks, checking accounts, and cash. This sum also represents your liquid net worth.

Next, subtract your consumer debts, such as student loans and credit card debt. This will provide you with the available funds without needing to sell any properties, such as your home.

Net Worth vs. Investable Assets

Many individuals use net worth to evaluate their overall financial health. However, some prefer to consider investable assets. What sets these two measurements apart? In essence, investable assets do not account for physical assets like property, land, or fine art.

Net worth, on the other hand, does consider these assets. One disadvantage of relying on net worth as a financial status indicator is its susceptibility to market value fluctuations of physical assets.

Tips for Building Investable Assets and Achieving Financial Wellness

With meticulous planning and execution, anyone can build a portfolio of assets that ensures a secure financial future. Here are some tips to help you begin acquiring your assets!

1. Fund Your 401(k) with Matching Contributions

A 401(k) is a retirement savings account enabling pre-tax contributions. Employers frequently offer matching contributions, meaning they match a percentage of your contributions. This opportunity ensures future financial wellness by gradually increasing your assets. Failing to take advantage of matching contributions essentially means leaving “free money” on the table.

2. Establish Emergency Reserves

An ounce of prevention is worth a pound of cure, especially in terms of finances. Unexpected emergencies can deplete your assets significantly. Therefore, building emergency funds serves as a valuable safeguard against costly financial crises.

Experts often recommend saving at least three months’ worth of expenses in case of unexpected events, such as health crises. However, saving more whenever possible is always beneficial.

3. Reduce Risk through Diversification

Diversification is essential for financial well-being. By investing in a variety of assets, you reduce investment volatility and risk.

A lack of diversity in your portfolio heightens the chances of incurring losses when one or two investments perform poorly. To mitigate this risk, distribute your investable assets across different categories, such as stocks, bonds, retirement accounts, and money market accounts.

4. Leverage Compound Interest

Compound interest has the power to turn small investments into substantial sums over time.

For instance, imagine saving $500 each month for retirement at age 25, with an average annual return of 7%. By age 65, the investment would be valued at approximately one million dollars! In comparison, starting that same investment at age 35 would result in a value of only approximately five hundred thousand dollars—showcasing the significance of compound interest. Seizing this opportunity is crucial, so don’t delay and benefit from compound interest today.

5. Regularly Rebalance Your Investment Portfolio

The economy and markets are unpredictable. Consequently, it is paramount to balance your investments to ensure current and future support.

This may involve selling off specific stock investments to secure profits or adjusting the allocation of assets, such as cryptocurrency, based on changes in risk tolerance.

Managing Your Investable Assets: Additional Tips

Managing your investments plays a vital role in ensuring financial wellness. By adopting a proactive approach and making informed decisions, you can maximize returns and minimize risks. Here are some useful tips:

Talk to a Financial Advisor

Consider seeking guidance from a financial advisor to manage your assets effectively. They possess the expertise and experience necessary to make informed decisions regarding investment placement.

Financial advisors also provide invaluable advice concerning asset allocation, diversification, and more—essential factors for preserving and increasing wealth.

Read Personal Finance Blogs

When managing assets, reading blogs and other resources from experts is essential. This practice enables you to avoid costly mistakes that could otherwise negatively impact your finances.

Our blog, for instance, offers valuable articles and resources to assist you in making intelligent investment choices, saving money, and generating multiple income sources to achieve financial goals.

Consider Your Risk Tolerance Level

Individuals possess varying levels of risk tolerance. This factor must be considered when managing assets. For example, lower-risk tolerance individuals might find investing in mutual funds appropriate for their portfolios. Conversely, individuals with higher-risk tolerance may explore investment opportunities in cryptocurrency. Understanding which investment aligns best with your risk tolerance is crucial before making any decisions.

Commence Building Investable Assets for Increased Wealth!

Investable assets not only pave the path to financial freedom but also prepare you for unforeseen circumstances. However, to ensure long-term financial security, it is crucial to learn how to manage your assets wisely.

Whether through consulting a financial advisor or self-educating via reputable blogs, it is never too late to start building your investable assets today.