What Are Assets?

Assets’ might sound like a term from the world of accountants and financial experts, but did you know that you deal with them every day – often without realizing it? Think of your savings, stocks, your house, or your car. Each of these is a type of asset that reflects your financial situation.

But the question remains: what exactly is an asset? And what is the meaning of assets when it comes to investing, running a business, or simply gaining more control over your finances? In this blog, we explain it clearly and practically, so you not only understand what assets are, but also how to use that knowledge effectively.

Meaning of Assets

Assets are possessions owned by an individual, company, or organization that have economic value. Simply put: they are all the things you own that can generate money in some way. Think, for example, of real estate, stocks, machinery, vehicles, and even cash. In accounting, assets are listed on the left side of the balance sheet.

There are different types of assets, such as:

• Fixed assets: These are long-term possessions such as buildings, machinery, and vehicles. They are usually held for several years and gradually lose value through depreciation.
• Current assets: These are short-term possessions, such as inventory, accounts receivable (outstanding invoices from customers), and liquid assets like cash or bank balances.
  

Why Are Assets Important?

Assets form the basis of the financial health of a business or individual. They provide insight into how much value is present and to what extent someone is able to meet financial obligations. Assets can also be used as collateral for loans or investments.

For investors, understanding assets is important. By looking at a company’s assets, for example, you can assess how solid the financial position of that company is. Companies with many valuable assets are often seen as more stable and less risky.

The Difference Between Assets and Liabilities

Besides assets, there is also the concept of liabilities, and it's important to understand the difference. While assets are possessions, liabilities are the debts or obligations of a company. The difference between assets and liabilities forms the equity. When assets exceed liabilities, this means there is positive equity – a sign of financial stability.

The Role of Assets in Your Investment Strategy

If you are active in the financial markets, such as through iFOREX Europe, you constantly deal with different types of assets. When trading in stocks, currencies, or commodities, you are investing in assets that you expect to increase in value.

It is therefore important not only to know what an asset is, but also to understand the characteristics of each type of asset. For example, stocks are riskier but can yield high returns in the long term. Bonds are more stable but often have lower returns. Commodities like gold or oil can serve as a hedge against inflation or market uncertainty.

Analyzing Assets Using Benchmarks

One way to assess the performance of assets is by using a benchmark. This is a standard or reference point against which the value or performance of an investment is compared. By comparing your portfolio to a benchmark, you gain insight into how well (or poorly) your assets are performing relative to the market.

For example, if you invest in an ETF that tracks the AEX, then the AEX is your benchmark. If your ETF outperforms the AEX, you’ve done well. Conversely, underperformance can indicate risks or poor choices.

Assets in Times of Recession

During economic downturns, such as a recession, the values of assets often change dramatically. Real estate prices may fall, companies may earn less profit, and stock markets may fluctuate significantly. In such times, it’s wise to critically evaluate and possibly restructure your assets.

A balanced mix of assets – also known as a diversified portfolio – helps to spread risk and makes you less dependent on a single type of investment.

Actively Trading Assets via CFD Trading

At iFOREX Europe, you can also trade assets via CFD trading. CFD stands for “Contract for Difference” and allows you to speculate on price movements without actually owning the underlying asset. This offers flexibility and opportunities, but also involves risks. Read more about CFD trading on our website.

Note: Investing involves risks; it is possible to lose all or part of your investment. All information provided by iFOREX Europe is not to be considered investment advice.