What are tangible and intangible assets?
Assets can be classified based on their physical existence: they are either tangible (existing physically) or intangible assets that lack physical form.
In accounting, companies have tangible and intangible assets on their balance sheet. In investing, besides financial assets, an investment portfolio in a broader sense may also include real estate and tangible assets. Some would argue though that an investment portfolio is a collection of only financial assets, like cash, stocks and bonds and other securities.
Investing in tangible assets may help make your portfolio more balanced as its characteristics are so different from other asset classes. When, for instance, stocks are not doing well in a prolonged bear market, there is still a chance that real estate is performing OK. Diversifying your investments across different asset classes can help you achieve higher returns and reduce the overall risk of the portfolio.
Tangible assets
Tangible or physical assets are ones that we can touch, feel and see in their physical form.
Some examples of tangible assets:
- land
- real estate
- machinery
- equipment
- inventory
- vehicles
Intangible assets
Intangible assets are non-monetary assets without physical form that are expected to generate a return for the company, according to IFRS standards. Some of them are depreciated over time in value.
Identifiable intangible assets are those that can be separated from other assets and even sold, e.g.:
- intellectual property
- patents
- copyrights
- trademarks
- trade names
- software
Unidentifiable intangible assets are those that cannot be physically separated from the company, e.g.:
- goodwill
- brand recognition
- reputation
What else do you need to know about assets and asset classes?
If you'd like to broaden your knowledge, check out the following articles:
- Investment Asset Classes
- What is an asset manager?
- What are liquid assets?
- What are alternative investments?
- Are stocks liquid assets?
- What is asset allocation?
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