Types of Assets: Financial, Tangible, and Intangible - YouTube

How would you like to be rich? In the  previous tutorial, we learned about wages,  

but the richest people in the world don’t  simply save their wages to become wealthy,  

they buy up assets. An asset is anything  of value that can be converted into money.  

Both individuals and businesses own assets  with the expectation that they will provide  

a future benefit. Let’s look at an example.  Rosalina makes $100,000 a year in wages,  

but decides she wants to invest some of it. She  decides to purchase some stocks, corporate bonds,  

and real estate. She does this because she  knows that if she were to simply keep her  

money sitting in a bank, it wouldn’t grow much. So what do we mean by “grow” in this context?  

Money certainly doesn’t grow on trees, but  it can grow through investment in assets.  

An investment is the act of redirecting resources  from being consumed today so that they may create  

benefits in the future. In other words,  it involves using assets to make money,  

and one of the best ways to earn wealth is to  accumulate as many valuable assets as you can. 

In this tutorial, we are going  to look at three types of assets:  

financial assets, tangible assets, and intangible  assets. A financial asset is a claim on the  

property or income of a borrower. Common examples  of financial assets include just plain old cash,  

or cash equivalents, like a savings account,  stocks, bonds, mutual funds, or retirement  

accounts. A tangible asset, also known as a real  asset, is one that can be physically touched.  

So actually, cash also qualifies as a tangible  asset, but additionally we are typically referring  

to things like land, houses, cars, artwork, or  collectibles. For a business, tangible assets  

might include things like machinery or office  supplies. Financial assets get their value from  

contractual claims on underlying assets, and can  therefore sometimes be considered tangible assets.  

Finally, an intangible asset is any  asset that is not physical in nature.  

Examples of intangible assets include patents,  trademarks, and copyrights, which all protect  

ownership of ideas and inventions. For a business,  an intangible asset might even be something as  

abstract as brand recognition, which is not a  physical object yet still has measurable value. 

Now, some assets can be converted  into cash more easily than others.  

Economists call this liquidity. The more liquid  an asset, the easier it is to turn into cash. Both  

individuals and businesses have to deal  with liquid and non-liquid markets. A  

liquid market is established with lots of  potential buyers. For example, stocks are  

generally more liquid than real estate. This  is because it’s easier to sell them. These days  

you can sell shares of a stock in a matter of  seconds on your phone, while it may take months  

or even years before you’re able to sell land  since there may be less demand in that market. 

In a future tutorial, we will look  more specifically at how people invest  

in order to build wealth, but all we need to  understand for the moment is that accumulating  

assets is generally the only way to truly build up  wealth, since it is wealth that grows without the  

need for additional labor. This type of income, by  the way, is called passive income. The money comes  

in regardless of whether or not you go to work  every day. In fact, with enough liquid assets,  

it is possible that one no longer has to  worry about working for wages in order  

to survive. But enough daydreaming, let’s move  forward and continue learning about economics.