Financial assets are those that can be quickly and easily converted into cash if needed. They are often non-physical assets that derive value from market trends, supply and demand, and other factors. However, financial assets are easier to transition from their current forms into cash when you suddenly need fast cash for emergencies, make major purchases, invest in opportunities that present themselves, or enjoy life's simple pleasures.

Types of Financial Assets

Financial assets come in various forms. Those listed below are among the most common types of financial assets you may possess.

• Cash
• Stocks and bonds
• Mutual funds
• Index Funds
• Bank deposits
• Certificates of Deposit (CDs)
• Retirement Accounts
• College Savings Accounts
• Money Market Accounts
• Insurance

These things offer varying degrees of value, and risk, at any time. Still, they are often easy to convert to simple cash if the occasion demands it. As with any asset, the timing of the need to convert financial assets into cash can cause fluctuations in value that may or may not be favorable to you at the moment. You can choose the terms and the timing when you convert financial assets into cash whenever possible.

The Value of Financial Assets

Financial assets are investments. You invest your money in these assets intending to make money from the transaction – whether today or at some point in the future. However, as with all assets and investments, there are no guarantees. While many people do well with financial assets over time, there is always a risk involved that your asset will not retain its value, will not gain value as quickly as you'd like, and may even lose value over time.

However, the value of financial assets for consumers is the easy transition from financial assets on paper to liquid assets or cash in hand. Getting cash out of most financial assets requires little time, energy, or effort.

Financial Assets and Wealth Building

A comprehensive strategy for accumulating wealth should incorporate a balanced mix of tangible assets, like property or commodities, and financial assets, such as stocks or bonds. A strategy that disproportionately leans towards either type may not yield a robust financial portfolio. If you're worried about striking the right balance between tangible and financial assets in your portfolio, you might find it beneficial to seek expert advice. It is about correctly distributing your assets and enhancing your potential investment returns while reducing your risk exposure to protect you in financial downturns.

Managing Financial Assets

Financial assets need to be carefully managed and maintained. Not only do they hold substantial interest to you on personal and financial levels, but mismanagement of these accounts may also result in substantial problems with Uncle Sam. Consider working with a financial advisor, planner, or wealth management firm to help you maintain the appropriate documentation for your financial assets.

Assessing Risk

Like all investments, financial assets typically involve varying levels of risk. Certain assets, like cash, bank deposits, and CDs, offer low risk as their returns are usually fixed and guaranteed. On the other hand, assets such as stocks, bonds, mutual funds, and index funds can appreciate or depreciate based on market conditions and the issuing company's value. While they offer the potential for higher returns, they also carry the risk of losses. When making investment decisions, it's crucial to carefully assess the risk associated with each asset.

Taxes and Financial Assets

Because your good old Uncle Sam always wants to make sure he's getting his fair share of your assets, it is important to protect yourself and your financial interests by maintaining impeccable records of your financial assets and paying any taxes due on gains in a given year (not to mention penalties for early withdrawals if they apply). After all, paying unnecessary taxes, fines, fees, and penalties on financial assets is a fast way to transform them into financial liabilities instead.

Takeaways

Financial assets are important tools in a solid wealth-building plan. To build wealth, you should accumulate diverse financial and physical assets. The greater the diversity in investments and assets, the less likely you will suffer a total loss if one sector of the economy suffers while others do not.