what is a financial asset 
a financial asset is a liquid asset that gets its value from a contractual right or ownership claim cash stocks bonds mutual funds and bank deposits are all are examples of financial assets unlike land property commodities or other tangible physical assets financial assets do not necessarily have inherent physical worth or even a physical form rather their value reflects factors of supply and demand in the marketplace in which they trade as well as the degree of risk they carry investopedia mira norianunderstanding a financial assetmost assets are categorized as either real financial or intangible real assets are physical assets that draw their value from substances or properties such as precious metals land real estate and commodities like soybeans wheat oil and iron intangible assets are the valuable property that is not physical in nature they include patents trademarks and intellectual property financial assets are in between the other two assets financial assets may seem intangible non physical with only the stated value on a piece of paper such as a dollar bill or a listing on a computer screen what that paper or listing represents though is a claim of ownership of an entity like a public company or contractual rights to payments say the interest income from a bond financial assets derive their value from a contractual claim on an underlying asset this underlying asset may be either real or intangible commodities for example are the real underlying assets that are pinned to such financial assets as commodity futures contracts or some exchange traded funds etfs likewise real estate is the real asset associated with shares of real estate investment trusts reits reits are financial assets and are publicly traded entities that own a portfolio of properties the internal revenue service irs requires businesses to report financial and real assets together as tangible assets for tax purposes the grouping of tangible assets is separate from intangible assets 1common types of financial assetsaccording to the commonly cited definition from the international financial reporting standards ifrs financial assets include 2in addition to stocks and receivables the above definition comprises financial derivatives bonds money market or other account holdings and equity stakes 3 many of these financial assets do not have a set monetary value until they are converted into cash especially in the case of stocks where their value and price fluctuate aside from cash the more common types of financial assets that investors encounter are pros and cons of highly liquid financial assetsthe purest form of financial assets is cash and cash equivalents checking accounts savings accounts and money market accounts liquid accounts are easily turned into funds for paying bills and covering financial emergencies or pressing demands other varieties of financial assets might not be as liquid liquidity is the ability to change a financial asset into cash quickly for stocks it is the ability of an investor to buy or sell holdings from a ready market liquid markets are those where there are plenty of buyers and plenty of sellers and no extended lag time in trying to execute a trade in the case of equities like stocks and bonds an investor has to sell and wait for the settlement date to receive their money usually one business day 4maintaining funds in liquid financial assets can result in greater preservation of capital money in bank checking savings and cd accounts are insured against loss of up to 250 000 by the federal deposit insurance corporation fdic for credit union accounts if for some reason the bank fails your account has dollar for dollar coverage up to 250 000 however since fdic covers each financial institution individually an investor with brokered cds totaling over 250 000 in one bank faces losses if the bank becomes insolvent 5liquid assets like checking and savings accounts have a limited return on investment roi capability roi is the profit you receive from an asset divided by the cost of owning that asset in checking and savings accounts the roi is minimal they may provide modest interest income but unlike equities they offer little appreciation also cds and money market accounts restrict withdrawals for months or years when interest rates fall callable cds are often called and investors end up moving their money to potentially lower income investments liquid financial assets convert into cash easily some financial assets have the ability to appreciate in value the fdic and ncua insure accounts up to 250 000 highly liquid financial assets have little appreciationilliquid financial assets may be hard to convert to cash the value of a financial asset is only as strong as the underlying entity illiquid assets pros and consthe opposite of a liquid asset is an illiquid asset real estate and fine antiques are examples of illiquid financial assets these items have value but cannot convert into cash quickly another example of an illiquid financial asset are stocks that do not have a high volume of trading on the markets often these are investments like penny stocks or high yield speculative investments where there may not be a ready buyer when you are ready to sell keeping too much money tied up in illiquid investments has drawbacks even in ordinary situations doing so may result in an individual using a high interest credit card to cover bills increasing debt and negatively affecting retirement and other investment goals real world example of financial assetsbusinesses as well as individuals hold financial assets in the case of an investment or asset management company the financial assets include the money in the portfolios firm handles for clients called assets under management aum for example blackrock inc is the largest investment manager in the u s and in the world judging by its 10 trillion in aum as of dec 31 2023 67in the case of banks financial assets include the worth of the outstanding loans it has made to customers capital one the 9th largest bank in the u s reported 481 720 million in total assets on its first quarter 2024 financial statement of that 315 154 million were from real estate secured commercial and industrial loans 89