[site-breadcrumb]
Tangible vs. Intangible Assets: What Investors Should Know
Assets can be categorized according to whether they have a physical presence. In general, they fall into two groups: tangible assets, which exist in physical form, and intangible assets, which do not have a physical structure.
From an accounting perspective, companies report both types of assets on their balance sheets. In the context of investing, portfolios are usually composed of financial assets. However, in a broader sense, an investment portfolio may also include real estate or other physical assets. Some investors prefer a narrower definition and consider a portfolio to consist only of financial instruments such as cash, stocks, bonds, and other tradable securities.
Including tangible assets in an investment strategy can help create a more balanced portfolio because their performance often differs from that of traditional financial markets. For example, during a prolonged downturn in the stock market, other asset classes like real estate may still perform relatively well. Diversifying investments across various asset types can potentially improve returns while also reducing overall portfolio risk.
Tangible Assets
Tangible assets are physical items that can be seen, touched, and measured. They have a material presence and typically retain value due to their physical nature.
Some common examples of tangible assets include:
- land
- real estate
- machinery
- equipment
- inventory
- vehicles
Intangible assets
Intangible assets are non-monetary assets without physical form that are expected to generate a return for the company, according to IFRS standards. Some of them are depreciated over time in value.
Identifiable intangible assets are those that can be separated from other assets and even sold, e.g.:
- intellectual property
- patents
- copyrights
- trademarks
- trade names
- software
Unidentifiable intangible assets are those that cannot be physically separated from the company, e.g.:
- goodwill
- brand recognition
- reputation
What else do you need to know about assets and asset classes?
If you’d like to broaden your knowledge, check out the following articles:
- Investment Asset Classes
- What is an asset manager?
- What are liquid assets?
- What are alternative investments?
- Are stocks liquid assets?
- What is asset allocation?