An investor who buys land, building, painting or gold can touch and feel them. These are physical assets that can be touched, felt and used.
Financial assets are the ones that can’t be touched and felt. Examples include shares, bonds, mutual funds schemes, fixed deposits, and bank accounts. Their value is not in the paper or receipt but in what they are entitled to.
Let’s see the various points of having physical or financial assets…
- Comfort: Investors derive psychological comfort in holding a physical asset because they can have the feeling of possession. This difference in comfort is a major reason why more than half the wealth of Indians is locked in Real Estate and Gold.
- Unforeseen Events: Physical assets are susceptible to theft, fire and require high maintenance. On the other hand, financial assets can be claimed easily even if there is any natural disaster.
- Economic Context: Investor’s money in land, art, coins or gold rarely helps the economic development of a country. Financial assets are productive for the economy. These can help companies and govt prosper by investing in them.
- Liquidity: Financial assets are the most liquid. It is very difficult to find buyers and sellers for a particular real estate or painting. Also, the transaction process involved in real estate is cumbersome. Stamp duty charges tend to be higher. Stocks and mutual funds, on the other hand, have minimal costs.
It is time to shift the wealth. Just because of the comfort option to feel and touch the asset doesn’t make it a good option. There are high chances of wealth being blocked in physical assets. Therefore, investors need to have a balanced portfolio in physical and financial assets to mitigate the risk of liquidity, unforeseen events, and maintenance.
To Your Investment Success