A:

Stocks are financial assets, not real assets. Financial assets are paper assets that can be easily converted to cash. Real assets are tangible and therefore have intrinsic value. Because the definition of a financial asset, rather than that of a real asset, best describes stock, this is the category into which it falls.

Assets Explained

An asset is something owned by an entity, such as an individual or business, that has value and can be used to meet debts and obligations. The total of an entity's assets, minus its debts, determines its net worth. Assets that are easily converted to cash are known as liquid assets. Those that cannot be converted to cash easily, such as real estate and plant equipment, are called physical assets.

Real Assets Vs. Financial Assets

Another important distinction is between real assets and financial assets. The Venn diagram of real assets and physical assets has significant overlap, as does that of financial assets and liquid assets.

Real assets are so named because they can usually be seen and touched. They are tangible assets with physical properties. A company truck, a building owned by an entity, a piece of farm equipment; these are all examples of real assets.

Financial assets, such as stocks, cannot be seen or touched, but they represent value to the entity that owns them. Unlike real assets, stocks and other financial assets can be converted to cash quickly when needed. Ideally, companies desire a mix of real and financial assets, though the ideal breakdown between the two varies greatly by industry.

RELATED FAQS
  1. What is the difference between current assets and fixed assets?

    Learn what current assets and fixed assets are, examples of current and non-current assets, and the differences between these ... Read Answer >>
  2. What is an asset?

    An asset is anything of value that can be converted into cash. Assets are owned by individuals, businesses and governments. ... Read Answer >>
  3. What affects an asset's liquidity?

    Learn about what affects an asset's liquidity, including examples of liquid and fixed assets, and how a company's liquidity ... Read Answer >>
  4. The Role of an Asset Manager in the Real Estate Market

    Find out what role asset managers play in the real estate markets. Learn how real estate portfolios are selected and why ... Read Answer >>
  5. What Assets Are Considered Liquid And Non-Liquid?

    In this article, you'll learn what liquid assets are, what assets are considered liquid, and what investments are considered ... Read Answer >>
  6. 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 >>
Related Articles
  1. Managing Wealth

    Comparing Tangible and Intangible Assets

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

    How to Calculate Your Tangible Net Worth

    You can calculate your tangible net worth with a simple equation.
  4. Investing

    Key Reasons To Invest In Real Estate

    There has been a lot of negativity over the real estate sector since 2008. Here are the reasons why you should be investing in it.
  5. Managing Wealth

    Asset Manager Ethics: Valuation Is A Tricky Business

    Asset managers must accurately represent all of a clients assets in the client portfolio. This can be tricky for unique and hard-to-value assets.
  6. Investing

    Asset Turnover Ratio

    Investopedia explains: The asset turnover ratio is a measure of a company's ability to use its assets to generate sales or revenue, and is a calculation of the amount of sales or revenue generated ...
  7. Investing

    Real Estate Vs. Stocks: Which One's Right For You?

    There are ups and downs for both real estate and stock investments, so before diving in, know the differences between the two.
  8. Investing

    A Guide to Real Estate Investing

    Investing in real estate is a popular choice for good reasons, but it's more complicated than owning your typical stocks and bonds.
  9. Investing

    Understanding Financial Liquidity

    Understanding how this measure works in the market can help keep your finances afloat.
RELATED TERMS
  1. Real Asset

    A real asset is a physical or tangible asset, such as gold, real ...
  2. Financial Asset

    A financial asset is a tangible liquid asset that derives value ...
  3. Business Asset

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

    A tangible asset is an asset that has a physical form, and includes ...
  5. Liquid Asset

    A liquid asset is an asset that can be converted into cash quickly ...
  6. Asset Base

    Asset base refers to the underlying assets giving value to a ...
Hot Definitions
  1. Receivables Turnover Ratio

    Receivables turnover ratio is an accounting measure used to quantify a firm's effectiveness in extending credit and in collecting ...
  2. Treasury Yield

    Treasury yield is the return on investment, expressed as a percentage, on the U.S. government's debt obligations.
  3. Return on Assets - ROA

    Return on assets (ROA) is an indicator of how profitable a company is relative to its total assets.
  4. Fibonacci Retracement

    A term used in technical analysis that refers to areas of support (price stops going lower) or resistance (price stops going ...
  5. Ethereum

    Ethereum is a decentralized software platform that enables SmartContracts and Distributed Applications (ĐApps) to be built ...
  6. Cryptocurrency

    A digital or virtual currency that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of ...
Trading Center