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. Active Asset

    An asset that is used by a business in its daily or routine operations. ...
  3. Amortization Of Intangibles

    A tax term relating to the practice of deducting the cost of ...
  4. Identifiable Asset

    An asset of an acquired company that can be assigned a fair value ...
  5. Long-Term Assets

    1. The value of a company's property, equipment and other capital ...
  6. Invisible Assets

    An item of value that is intangible and that cannot be seen, ...
Related Articles
  1. Managing Wealth

    Comparing Tangible and Intangible Assets

    Tangible assets are physical assets such as land, vehicles or equipment.
  2. 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.
  3. Investing

    Goodwill vs Other Intangible Assets: What's the Difference?

    "Intangible" assets don't possess physical substance. Yet they are quanitfiable, and of great importance to any business.
  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. 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.
  9. Managing Wealth

    What are Intangible Assets?

    Intangible assets represent potential revenue. Take an intangible asset like brand recognition: There is value in people remembering your company and then wanting to buy its products.
RELATED FAQS
  1. 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 >>
  2. 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 >>
  3. What types of companies have a high proportion of intangible assets?

    Explore what types of companies are most likely to have a high proportion of intangible assets, due to the nature of the ... Read Answer >>
  4. What is the difference between fixed assets and current assets?

    Learn the differences between fixed assets such as land and current assets such as cash, as well as how these types of assets ... Read Answer >>
  5. What are some examples of fixed assets?

    Learn the difference between fixed tangible assets and fixed intangible assets, and review examples of these two types of ... Read Answer >>
  6. Why should you invest in tangible assets?

    Read about some of the possible benefits of investing in tangible assets, such as bullion, real estate, art, collectibles ... Read Answer >>
Hot Definitions
  1. Expense Ratio

    A measure of what it costs an investment company to operate a mutual fund. An expense ratio is determined through an annual ...
  2. Pro Forma

    A Latin term meaning "for the sake of form". In the investing world, it describes a method of calculating financial results ...
  3. Trumpcare

    The American Health Care Act, also known as Trumpcare and Ryancare, is the Republican proposal to replace Obamacare.
  4. Free Carrier - FCA

    A trade term requiring the seller to deliver goods to a named airport, terminal, or other place where the carrier operates. ...
  5. Portable Alpha

    A strategy in which portfolio managers separate alpha from beta by investing in securities that differ from the market index ...
  6. Run Rate

    1. How the financial performance of a company would look if you were to extrapolate current results out over a certain period ...
Trading Center