What Is An Investable Asset? Learn Step By Step

Last Updated on February 18, 2024 by Amrita

Investable assets are an essential aspect of every individual’s financial life. They not only serve as a measure of one’s net worth but also play a crucial role in determining their financial stability and potential for future investments. In this article, I will discuss the concept of investable assets, why they matter, how to calculate them and provide tips on effectively managing and maximizing them.

Table of Contents

What Is An Investable Asset?

An investable asset can be defined as any financial resource that can easily be converted into cash and invested in various securities. These assets typically include bank accounts, stocks, bonds, and mutual funds.

It is essential to note that properties and physical assets such as homes, vehicles, real estate investment properties, art, jewelry, or collectibles are not considered investable assets due to their limited liquidity. These assets require time and effort to be converted into cash, making them less suitable for immediate investments.

Examples Of Investable Assets:

Cash and savings accounts,
Stocks and bonds,
Mutual funds,
Exchange-traded funds (ETFs),
Certificates of deposit (CDs),
And retirement accounts such as 401(k) s and IRAs

Knowing your investable assets is important because it provides a more accurate measure of the value you hold in your financial portfolio. While your net worth may include all of your possessions and properties, only your investable assets are readily available for investment purposes.

Why Does An Investable Asset Matter?

Investable assets are an important wealth indicator for financial advisors and lenders for various reasons. They provide valuable insights into an individual’s financial standing, including their net worth and potential for future investments. Here are some key reasons why investable assets matter:

Helps in investment planning: Financial advisors and investors use investable assets as a guide to determine the amount of money available for investments. It helps them create a personalized investment plan that aligns with an individual’s financial goals.
Determines creditworthiness: Lenders, banks, and credit issuers assess an individual’s investable assets before extending credit facilities like mortgages or personal loans. The more investable assets one has, the more creditworthy they are perceived to be.
Indicates financial stability: A healthy amount of investable assets is an indicator of financial stability. It shows that an individual has enough resources to cover their living expenses and also have surplus funds for investments or emergencies.

How To Calculate Investable Assets?

Calculating your investable assets involves a simple formula: adding up all your liquid and near-liquid assets while subtracting any debts or liabilities. Here’s a step-by-step process on how to calculate your investable assets:

Make a list of all your liquid and near-liquid assets, including cash, checking and savings accounts, CDs and money market accounts, stocks, bonds, mutual funds, retirement accounts, trusts, etc. You can also include any investment properties that generate regular income.
Add up the total value of these assets.
Make a list of all your debts and liabilities, such as credit card balances, mortgages, personal loans, car loans, etc.
Subtract the total amount of debts from the total value of your assets.
The resulting number is your investable assets.

It is recommended to recalculate your investable assets at least once a year or after any significant life event, such as a job change, marriage, or inheritance. This will help you keep track of your financial progress and make adjustments to your investment plan if necessary.

Tips For Managing Investable Assets

Set realistic goals: Before making any investments, it is crucial to have a clear understanding of your financial goals and risk tolerance. Set achievable targets for your investable assets, taking into consideration your age, family situation, income, and cost of living.
Diversify your investments: Don’t put all your investment in one place. A diverse investment portfolio can help minimize risks and maximize returns. Consider investing in different asset classes, such as stocks, bonds, and real estate, to spread out your risk. Learn More About Diversification: https://www.investopedia.com/terms/d/diversification.asp
Regularly review and rebalance: As the market changes, so should your investment portfolio. It is essential to regularly review and rebalance your investments to ensure they align with your goals and risk tolerance.

Seek professional advice: Consider working with a financial advisor or manager to help you develop a personalized investment plan and make informed decisions regarding your investable assets.
Continuously save and contribute: The more funds you have available for investments, the better. Make it a habit to continuously save and contribute to your investable assets through regular deposits or automatic transfers from your paycheck.

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Conclusion | What Is An Investable Asset?

Investable assets are not just important to have, but also crucial to manage effectively. By understanding what they are, why they matter, and how to calculate them, you can take control of your financial future and maximize your investment potential.

Remember to set realistic goals, diversify your investments, regularly review and rebalance, seek professional advice when needed, and continuously save and contribute to your investable assets for long-term financial stability.

So, it is essential to keep a close eye on your investable assets and make strategic decisions to grow and protect them over time. With proper management, investable assets can be powerful tools for achieving financial success and security.