The stock market in May was good. The Dow went up about 655 points or 1.9%. In this newsletter we will discuss what an asset is and common examples of different types of assets.
An asset is anything you own that can generate or is expected to be able to generate positive economic value. So, cash is an asset because it is directly more economic value in your bank account. A rental property is an asset because you collect rents. A collectable is an asset because you can sell it for money. Common types of assets are equity, bonds, currencies, real estate, commodities, and collectables. We are not talking here about the quality or certainty of the asset. Just the existence.
Equity in the context of this newsletter is referring to the stock in companies, whether publicly traded or traded in a private transaction. Mutual funds are included here.
A bond is when money is lent from one entity to another. When someone buys a bond, they are essentially buying a debt contract. They lend the bond issuer some amount of money and the bond issuer is obligated to repay the lender at a specified time in the future. They can be traded publicly or privately. They can be bundled into mutual funds.
Currencies are things you can exchange for goods and services. People invest in currencies because they believe the particular currency will become more valuable over time relative to a different currency. They can then sell their currency for that different one. For example: currently one Euro can be exchanged for 1.22 US dollars. If someone believed that Euros will become more valuable relative to US dollars in the future (like 1.23 US dollars per Euro), they could profit by buying a euro for $1.22 and then later selling it for $1.23.
Real estate refers to buildings, land, and natural resources such as minerals. Real estate is traded on both public and private markets. Commodities are physical materials that are used within the production process of other goods. Examples are oil, precious metals, coal, etc. Collectables are objects that people collect. They generally do not produce cash on their own but rather will be theoretically profited from when sold. Examples would be baseball cards, paintings, cars, etc.
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Daniel and Eli
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