You have finally reached the point where there's a little extra money left over after all the bills have been paid. You've established your emergency fund and you have a good handle on paying down your debts. It's time to start playing grownup and begin to think about developing a financial portfolio. It may sound fuddy duddy, but it actually can be fun.
Assets run from tangible, like your auto, to intangible like that screenplay you've written but haven't quite sold yet. Stocks, bonds, mutual funds, savings accounts and certificates of deposits are all considered assets. Stocks represent the ownership of percentage of a company. The percentage is based on how many shares are outstanding. You too can own a tiny, tiny, tiny piece of Google. Investment quality assets also include antiques, jewelry, gold coins, collectibles, artwork and lots of other items. The advantage of some of these types of assets is you can display them or wear them. That's a little difficult to do with stocks.
Stocks are easily converted into cash. Call your broker or do-it-yourself online. Within 48 hours, you've got cash. That's not how it works with investment-quality assets. It may take months to sell that painting you bought. Jewelry is sold based on the value of the components, the gold, diamonds or other gems and the craftsmanship. If you are forced to sell a piece of jewelry, you will most likely get only the discounted value of the components. In other words, that pricey engagement ring you paid $75,000 for will only get you $20,000 or less, if you have to sell it quickly.
Experience and Knowledge
Buying stocks means you know how to use a calculator and transfer funds. Well, it may not be quite that simple. It does pay to study the company whose stock you're considering, know the industry and market trends. However, it requires extensive knowledge to buy investment quality assets. If you've ever watched one of those antique shows where people bring in the stuff they think is worth megabucks, you know how important knowledge and experience is. Here's another example, a one-carat diamond may be valued from $2,500 to more than $30,000.
Both buying stocks and assets involves risk. Theoretically, the higher the risk, the lower the price, the higher the payout. Follow an IPO, or initial public offering, and you'll see the stock substantially rise, or fall, in the first few days following the offering. Risk is also a factor when buying investment quality assets. Silver prices may be super today, but be terrible tomorrow.
Storage and Security
Stocks don't have to be stored. Back in prehistoric days, stock certificates were actually proof of ownership and needed to be kept in a lockbox or safe. Not any more, your proof of ownership is your statement. Tangible assets such as jewelry, artwork, gold and silver have to be kept in a safe and secure place. If you want the value of these assets protected in the case of theft or acts of nature, they have to be insured.
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