Now that you’re getting older!You’re hearing your friends and parents talk about investments, and you may be unclear about what an investment is. Surprised at even how many adults lack understanding of what an investment truly is.
To understand investments we must also learn about assets, like investments, assets are similar and sometimes seem to be the same thing but they are in fact different.
Assets are things that have value and have the ability to make lose or retain their value this represents things like money a car furniture and art.
Investments also have value and the ability to make lose or retain their value unlike assets however they produce additional monetary worth. Think of a company that makes a product and sells it to you and me the product is the added value created by the company.
Now let’s test your knowledge;
Is an ounce of a gold asset or an investment? If you said asset you are correct!
Lots of people misunderstand this concept but here is why if you take an ounce of gold and put it in a safe for 30 years later take it out it’s still just announced a gold, it didn’t produce anything even though it might be worth more than when you first put it in the safe.
Let’s try another one,
Is a house that you live in an asset or an investment? If you said asset you are correct.
If however, you decide to rent the property out to another family and charge them rent it then becomes a rental property or a real estate investment.
Remember that assets like investments can have their value change over time but only when the asset creates additional monetary worth outside of the hard asset does it become an investment.
One more is a Treasury bond an asset or an investment? If you guessed investment you are correct.
Treasury bonds are a form of debt owed to you by the government. The bond itself has value and it can fluctuate. But because it pays you money in the form of interest every year it’s considered an investment.
Both assets and investments are worth owning but understanding what they are will become important as you get older learning to identify the difference can take practice but it’s worth learning early on.