|Assets are the basic building blocks
of investing. All financial planning should be in terms of assets.
Assets and products
Assets are things you might invest in. That's
why they are called 'assets'.
Cash is an asset. If you put it under the mattress,
that's all it is. If you spend it on something that might:
- yield an income, or
- go up in value, or
.......then you have a different asset. The left links
sidebar shows the different types of asset.
The trouble with assets is that they can be inflexible
(houses), indivisible (office property), illiquid (unquoted shares)
and hard to diversify (all of them). The financial services industry
packages assets into handy bundles for the convenience of the consumer.
For example, a unit trust is a package of lots of different shares
('equities') in different companies, subdivided into 'units' that
the consumer can buy. The consumer pays for this convenience through
management charges and other ways. He needs to judge whether the
convenience justifies the charges.
We discriminate, ruthlessly, between assets and products
because otherwise investment planning is confused. The planning
- Decide on the balance
of assets ('Asset allocation')
- Decide in what form the assets are to be
purchased: directly (low cost but inconvenient) or indirectly
through products (high cost but convenient)
- Decide on the individual assets (or products)
within the asset/product classes chosen
It is vital that the order of the first two is not
Wrappers are not assets or products - though
they are often (incorrectly) sold as such; they are administrative
groupings that contain investments
(or wrap round investments - hence 'wrappers'). E.g. an ISA is a
wrapper. More in Wrappers.