Your net worth may be a good way to determine how much value you hold, but investable assets might be a better measure. And if you’re considering working with a financial advisor, it’s smart to know what your investable assets are and how much you should have. Read on to learn more so you can find the right investment strategy for you.
What Are Investable Assets?
Investable assets include your liquid and near-liquid assets. This can include:
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Cash, checking and savings accounts
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CDs and money market accounts
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Stocks, bonds and mutual funds
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Retirement accounts and trusts
Properties and physical assets like your home, vehicles, other real estate investment properties and art, jewelry or collectibles aren’t considered liquid or near-liquid.
Investable assets are what you have when you don’t sell your possessions or properties. They’re an important wealth indicator for financial advisors and lenders for different reasons. They can be a helpful guide to understanding how much you can financially cover in case you need cash fast, too.
Why Do Investable Assets Matter?
Financial advisors will want to know what your investable assets are so they can better understand what they can use to invest on your behalf. It’ll help you figure out how much money to put toward your investments. Cash and money in your bank accounts can easily convert to investable assets. This means the more money you have on hand, the more you can use to invest.
Banks and credit lenders also look at your financial assets to see if you’re a good candidate to take on new debt, like a mortgage or personal loan. The more investable assets you have, the more likely you are to continue paying your debt in the event of a financial emergency.
How Do You Calculate Investable Assets?
Since your investable assets only include liquid and near-liquid assets, you’ll start there. Add them all up, then subtract any debt you owe. Avoid adding in your mortgage, if you have one. This is usually considered an “expense” and not a debt.
The difference in calculating your investable assets versus your net worth is that your net worth can change quite often, depending on how much your physical assets fluctuate based on their market values. In comparison, investable assets aren’t based on your physical assets. While they do fluctuate based on market conditions and how much debt you owe, they won’t see as much change.
If you’re in the market for a new home or you’re looking to hire a financial advisor, consider calculating your investable assets first. This can give you an idea of your worth and can help you understand how to handle investments going forward. Some brokerage firms have a minimum amount required to start investing. Making sure you know your investable assets can help you determine if a certain firm is right for you.