Most people think of their home as their biggest and most important investment and a substantial part of their net worth. However, it is important to note that your home is actually not an investable asset. Investable assets include liquid and non-liquid assets. Essentially, they are what you have before selling your possessions or properties.
In this article, we are going to discuss why investable investments are important to have, examples of what they are, and how to start building your own!
Why are investable investments important to have?
If you want to achieve financial success and freedom, having investable assets is a must. It's all about having assets that appreciate. They include cash, stocks, bonds, as well as other types of financial products such as mutual funds.
With these in your portfolio, you can be sure that you have enough money available to invest when the right opportunity comes along.
Moreover, investing your money wisely is the key to building wealth over time. The sooner you start investing for retirement or other long-term goals, the better off you'll be later on!
Examples of investable assets
Investable assets must be easily liquidated. Here are some examples to give you a better idea of what they are:
Cash, checking, and savings account
As we all know, cash is the most liquid form of money and can be used to purchase goods and services immediately. Checking accounts allow you to easily access your cash, as well as write checks and use debit cards. While savings accounts provide a way for you to save money over time.
Stock, bonds, and mutual funds
Stocks are a type of investment that represents a share in the ownership of a company. When you buy stock in a company, you own a share of that company and have a claim on its profits and assets.
Bonds are loans that companies or governments make to each other. Therefore, when you buy a bond, you're lending your money to a company or government in exchange for interest payments over a set period of time.
Lastly, mutual funds are baskets of different stocks, bonds, and other securities that investors can buy into as part of one investment fund. This gives investors a way to put their money into a wide variety of securities at once.
Retirement accounts and trusts
When it comes to retirement planning, there are a few different types of accounts and trusts you can use to save for your golden years.
One popular option is the Roth IRA, which allows you to save money tax-free and withdraw it tax-free in retirement. Another option is the 401k, which lets you defer taxes on your income until you retire.
There are also several different types of trusts that can be helpful for retirement planning, such as the irrevocable trust or the charitable remainder trust.
CDs and money market accounts
Both money market accounts and CDs (Certificate of Deposit) are savings vehicles offered by banks and credit unions to grow your money more quickly than traditional savings accounts.
However, CDs tend to provide a higher interest rate since you are required to keep your money in the account for a specific length of time.
How do you calculate total investable assets?
To calculate net investable assets, you simply add up all of your liquid and near-liquid assets. Such as stocks, checking accounts, and cash. This would also be considered your liquid net worth.
Then, subtract your consumer debt such as student loans and credit card debt. This leaves you with the amount of money available without having to sell your properties such as your home.
Net worth vs. Investable asset
Many use net worth to calculate their overall financial health, whereas some prefer to use investable assets. What's the difference between the two? To put it simply: Investable assets do not take into account your physical assets such as property, land, or fine art.
On the other hand, net worth does. And one disadvantage of determining your financial status with net worth is that it can fluctuate quite a bit due to the market values of your physical assets.
How to build your own investable assets to ensure financial wellness
With careful planning and execution, it's possible for anyone to build a portfolio of assets that will provide you with a secure financial future. Here are some tips to help you get started with buying your assets!:
1. Fund your 401(k) with matching funds
A 401(k) is a retirement savings account that allows you to save money for retirement on a pre-tax basis. Employers often offer matching funds, which means they will match a certain percentage of your contributions. This is an excellent way to ensure financial wellness in the future.
As it can help you build up your assets over time. The employer match can literally double your savings, and not taking advantage of it is essentially leaving "free money" on the table.
2. Build your emergency reserves
You may have heard the saying, "An ounce of prevention is worth a pound of cure". This is especially true when it comes to your finances. Sometimes, emergency situations can put a dent in your assets. Hence, building up your emergency funds can really help you avoid costly financial emergencies.
Most recommend having at least three months' worth of expenses saved up in case of an unexpected event like a health crisis. But it'll never hurt to save more just in case.
3. Reduce risk through diversification
Diversification is the key to financial well-being. By not investing in many different types of assets, you're more likely to experience investment volatility and risk.
And if you don't have a diverse portfolio, then your money may be at risk when one or two investments go sour.
For this reason, it's important to diversify them: dividing up your investable assets into various categories such as stocks, bonds, retirement accounts, and money market accounts.
4. Take advantage of compound interest
The power of compound interest means that even small amounts invested now can lead to huge differences down the road.
For example, imagine saving $500 monthly for retirement at age 25 and earning an average annual return of 7%. That investment would be worth around one million dollars by age 65!
By comparison, if you wait until age 35 to start investing that same amount, it would only be worth around five hundred thousand by then—a difference of 2x. So don’t procrastinate—take advantage of compound interest today.
5. Rebalance your investment portfolio as needed
You can never accurately predict what's going to happen in the economy and the market. Therefore, it's important that you carefully balance your investments to make sure they can support you now and in the future.
This can either mean selling off some of your investments in the stock market to lock in a profit or adjusting the amount invested in cryptocurrency due to the change in your risk tolerance level.
Tips for managing your investable assets
Managing your investments is one of the most important things you can do to ensure your financial wellness. By taking a proactive approach and making informed decisions, you can maximize your returns and minimize your risk. Here are some simple tips you might find useful:
Talk to a financial advisor
When it comes to managing your assets, you should consider consulting with a financial advisor. They have the expertise and experience to help you make the most informed decisions about where to put your money.
Financial advisors can also provide invaluable advice on asset allocation, diversification, and more. All of which are key factors in preserving and increasing your wealth.
Read blogs to further your knowledge about personal finance
If you're looking to manage your assets, it's important to read blogs and other resources to learn from experts. By doing so, you can avoid making costly mistakes that could otherwise cost you a lot of money.
For example, our blog offers plenty of valuable articles and resources that teach you how to invest smart, save money, and create multiple sources of income to help you achieve your financial goals.
Consider your risk tolerance level
Everyone has a different risk tolerance level. And that needs to be taken into account when you’re managing your assets. For example, if you have a low-risk tolerance level, then investing in a mutual fund could be appropriate for your portfolio.
On the other hand, if you have a high-risk tolerance level, then cryptocurrency could be a potential option for you. In either case, it pays to know what type of investment will make the most sense for you before making any decisions.
Start building investable assets and increase your wealth!
Investable assets will not only help you achieve financial freedom but also prepare you for any unforeseen circumstances. However, to ensure financial security in the long run, it is crucial that you learn how to manage your assets wisely.
Whether it's through consulting with a financial advisor or self-educating through reputable blogs, and if you don't have any investable assets yet, it's never too late to start building yours today.