Calculating investable assets is a great way to measure how wealthy you are. Instead of the more well-known net worth calculation, most financial advisors today prefer to use investable assets when helping their clients. This is because it projects a better picture of their client’s current financial situation when the time comes to make investment decisions. But what exactly do investable assets mean? How is it calculated and why is it so important? Read on to find out the answers to these questions and more.
What Are Investible Assets?
Investable asset refers to all the liquid and near-liquid assets you own. This includes cash (both in savings and checking accounts), stocks & bonds, retirement accounts, money market accounts, and many more. These assets can be easily and quickly used when needed for emergency expenses or for investing. Non-liquid assets such as vehicles, properties, and jewelry are not considered investible assets.
Why Are Investable Assets So Important?
Investable assets are a great measure of how much you can invest. Before giving any investment recommendations, financial advisors would often ask you to calculate your investable assets. This is because investable assets are liquid in nature; they can be easily used to make investments. The more investable assets you have, the more you could invest.
How Is It Calculated?
You can calculate your investable asset by adding all your liquid and near-liquid assets, before then subtracting debt. Keep in mind that mortgage payments should not be considered as debt but rather as an expense.
Investable asset calculations are easier to determine and prone to less volatility compared to net worth. Your net worth would often rise and fall depending on market conditions. Examples include your car depreciating in value over time or your house increasing in value as property prices rise. While your investable assets are also affected by market conditions, such as inflation, they are less likely to fluctuate by much.
It is advisable to calculate your investable assets before consulting with a financial advisor. This allows you to accurately assess your wealth and financial condition so that you would be able to set achievable goals when investing.
Do You Need To Constantly Calculate Your Investable Assets?
It is highly recommended to calculate your investable assets on a regular basis, such as at the start of every month. Why? Because it helps you quickly assess your financial situation in the event of an emergency, such as sudden hospital expenses. Knowing how much wealth and liquid assets you have and where will allow you to quickly liquidate them. You should also always have some investable assets on hand rather than using all of them to invest in properties and other physical assets.
You should also have a good plan and an achievable goal on how many investable assets you have. Investable assets often correlate with age, and practicing good financial management will ensure you have enough to live comfortably after retirement.
It is both very important to have and keep track of your investable assets. Doing so will allow you to exploit any investment opportunity that may come your way as well as help you comfortably get through any sudden, emergency expenses. You should consult with a financial advisor to help you reach your financial goals and further expand your wealth.