Loading the player...

What is a 'Real Asset'

Real assets are physical assets that have value due to their substance and properties. Real assets include precious metals, commodities, real estate, agricultural land, machinery and oil. They are appropriate for inclusion in most diversified portfolios because of their relatively low correlation with financial assets such as stocks and bonds.

BREAKING DOWN 'Real Asset'

Investing in real assets is particularly well-suited for inflationary times because of their tendency to outperform financial assets during such periods.

Most businesses own a range of assets, and they typically fall into the real, financial or intangible category. For example, imagine XYZ Company owns a fleet of cars, a factory and a great deal of equipment. These are real assets. However, the company also owns several trademarks and copyrights. These are intangible assets. Finally, the company has a few stocks in a sister company, which are financial assets.

Difference Between Real Assets and Financial Assets

Real assets are a separate and distinct asset class from financial assets. Unlike real assets, which have intrinsic value, financial assets derive their value from a contractual claim on an underlying asset which may be real or intangible. For example, commodities and property are real assets, but commodity futures, exchange-traded funds (ETFs) and real estate investment trusts (REITs) constitute financial assets whose value depends on the underlying real assets.

Advantages and Disadvantages of Real Assets

Real assets tend to be more stable than financial assets. Inflation, shifts in currency values and other macroeconomic factors affect real assets less than financial assets. However, real assets also have lower liquidity than financial assets, as they take longer to sell and have higher transaction fees in general. Finally, real assets have higher carrying and storage costs than financial assets.

Difference Between Financial Assets and Intangible Assets

Intangible assets include trademarks, brand recognition and other intangible items, but this asset category does not include stocks and bonds. Similarly, financial assets include stocks and bonds, but the category does not include goodwill, patents or other intangible assets.

Difference Between Tangible and Intangible Assets

Tangible assets include stocks, bonds, property, cash, vehicles and a host of other things, while intangible assets include only a small sliver of items. Tangible assets include both financial and real assets, while intangible assets include items that exclusively fall into the intangible category.

For tax purposes, the Internal Revenue Service (IRS) requires businesses to report intangible assets differently than tangible assets, but it groups real and financial assets together under the tangible asset umbrella.

RELATED TERMS
  1. Tangible Asset

    Assets that have a physical form. Tangible assets include both ...
  2. Intangible Asset

    An asset that is not physical in nature. Corporate intellectual ...
  3. Business Asset

    A piece of property or equipment purchased exclusively or primarily ...
  4. Net Tangible Assets

    Calculated as the total assets of a company, minus any intangible ...
  5. Active Asset

    An asset that is used by a business in its daily or routine operations. ...
  6. Calculated Intangible Value - CIV

    A method of valuing a company's intangible assets. This calculation ...
Related Articles
  1. Managing Wealth

    Comparing Tangible and Intangible Assets

    Tangible assets are physical assets such as land, vehicles or equipment.
  2. Managing Wealth

    How to Calculate Your Tangible Net Worth

    Your net worth can be calculated with a simple equation.
  3. Managing Wealth

    Explaining Financial Assets

    A financial asset is intangible property that represents a claim on ownership of an entity or contractual rights to future payments.
  4. Managing Wealth

    What's an Asset?

    An asset is a resource with economic value.
  5. Investing

    Intangible Assets Provide Real Value To Stocks

    Intangible assets don't appear on balance sheets, but they're crucial to judging a company's value.
  6. Managing Wealth

    Explaining Net Tangible Assets

    Net tangible assets is a company’s total assets subtracting both intangible assets (such as goodwill and intellectual property) and total liabilities.
  7. Investing

    Goodwill and Intangible Assets: One And The Same?

    "Goodwill" is a broad category for non-physical assets that are impossible to separate from the business itself, whereas "intangible assets" are individually identifiable and can be sold separately ...
  8. Investing

    Assessing Bank Assets: Are Your Savings Safe?

    Learn how to determine if your assets are safe or if your bank has spread itself too thin.
  9. Managing Wealth

    What is Asset Management?

    In the investment world, asset management refers to active management of an investor’s portfolio by a financial services company – usually an investment bank.
  10. Managing Wealth

    Retirement Wealth: The Place of Tangible Assets

    When building a retirement portfolio, you need to determine how tangible assets fit with traditional investment products in your wealth-building strategy.
RELATED FAQS
  1. Are stocks real assets?

    Learn why stocks are classified as financial assets, not real assets. Understand the properties that determine whether an ... Read Answer >>
  2. What is the difference between tangible and intangible assets?

    Discover the difference between tangible assets and intangible assets and the types of assets that are in each. Additionally, ... Read Answer >>
  3. What kinds of events or circumstances will increase or decrease the proportion of ...

    Learn the variety of events and circumstances which can significantly increase or decrease the proportion of intangible assets ... Read Answer >>
  4. What is the difference between a spot rate and a forward rate?

    Understand the concept of intangible assets and learn how they are handled in the purchase agreement when a company is bought ... Read Answer >>
  5. How does one amortize intangible assets?

    Understand what distinguishes intangible assets and how companies are required to amortize their value over time to recover ... Read Answer >>
  6. How do intangible assets appear on a balance sheet?

    Understand how various types of intangible assets are handled in a company's accounting and which of them you can find on ... Read Answer >>
Hot Definitions
  1. North American Free Trade Agreement - NAFTA

    A regulation implemented on Jan. 1, 1994, that decreased and eventually eliminated tariffs to encourage economic activity ...
  2. Benchmark

    A standard against which the performance of a security, mutual fund or investment manager can be measured.
  3. Mobile Wallet

    Mobile wallet is a virtual wallet that stores payment card information on a mobile device.
  4. Leverage

    1. The use of various financial instruments or borrowed capital, such as margin, to increase the potential return of an investment. ...
  5. Trumponomics

    Trumponomics is a term for the economic policies of President Donald Trump.
  6. Universal Health Care Coverage

    An organized healthcare system that provides healthcare benefits to all persons in a specified region. Many countries, such ...
Trading Center