What Are The Main Assets You Need To Share With Your Financial Advisor & Why

By: Greg Hammond, CFP®, CPA on September 27th, 2017

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What Are The Main Assets You Need To Share With Your Financial Advisor & Why

financial planning

When most people think of the net worth and the assets that comprise it, they often consider their money and investments alone. But assets come in many forms – from land and properties to jewelry and collectibles.

So what exactly is an asset? Essentially, your assets are everything you own. In more financial terms, as Investopedia puts it, “an asset is anything of value that can be converted into cash.”

Not all assets are the same, however. Generally speaking, assets are either:

  • Liquid – can easily be sold or converted to cash at its true value; think stocks or bonds

  • Illiquid – can’t easily be converted into cash, or if so, at substantial loss in value; think your house or family heirlooms

In order to help you offer sound advice and manage your assets – all of your assets – your financial advisor needs to know about everything that makes up your net worth.

So what are these (mostly illiquid) assets your advisor needs to know about?

1. “Typical” Investments

Let’s get the the liquid assets out of the way first. What we typically think of as our investments – stocks, bonds, mutual funds, retirement plans and pensions – can all be sold relatively quickly and easily. Annuities and life insurance policies are other forms of “typical” investments.

The value of these assets fluctuate over time depending on the their perceived market value, based on many economic and business factors, including interest rates. 

These are likely assets your financial advisor already knows about. That being said, many people have multiple advisors. In which case, even if they don’t manage all of your investments for you, knowing what kinds of assets you have with another advisor could change the advice they give you. So make sure your advisor has your total financial picture.

2. Real Estate: Home and Land

Your home is an asset, and if you have a mortgage on your home, the mortgage is a liability.

For the purpose of this article, we’ll focus on the aspects of a home that makes it an asset. Your home has a value. It’s true value is what you can get someone to buy it for, but the price someone is willing to pay stems from its perceived market value. Home prices fluctuate based on the strength of the economy, your neighborhood, and of course, specifics to your home. 

In simplified terms, the more people that want to live in your neighborhood – and more specifically, your home – the more valuable that assets has. Potential homebuyers will be bidding against one another, driving the price up. While you needn’t look further than 2007 for a time when home values dropped, home values have historically risen. According to the National Association of Realtors, home values have appreciated annually by 6.6%, a great form of wealth for millions of homeowners. That being said, it takes time to sell a home, making it a fairly illiquid asset.

Your real estate or property also consists of the land your house sits on. Land ownership might also offer you the right to natural resources your land may provide, like on a farm, for instance.

3. Furniture, Jewelry and Collections

Much like your home and land, furniture, jewelry, collections and heirlooms have certain market values, but their “worth” may not be the same as its cash value (if you sold it). These items can also fluctuate in value.

Perhaps you have furniture that’s considered antique, and increases in value over time due to its rarity. Most furniture, however, will depreciate in value over time due to normal wear and tear.

Jewelry value may fluctuate based on the rarity of stones or elements in them. And the same can be said for rare collections – baseball cards, rare coins and even action figures. There are many types of valuable collections.

4. Automobiles, Boats and More

Automobiles, boats and other vehicles often function similarly to a home, on a much smaller scale, of course. By that, we mean that you often take out a loan to purchase a car, for example.

Throughout your life, you may have purchased and sold many different vehicles. So you know how the value of your automobile depreciates over time. There are only so many miles a car or truck can go before it starts to break down (literally and figuratively). In fact, as soon as you drive a new car off the lot, it loses 9% of its value. 

Antique cars may be a different story, however. You could include antique cars in the section above, because rare vehicles (in great condition) can grow exponentially in value. If you happen to own a 1954 Mercedes-Benz W196R, you’re the proud owner of a $25 million car.

5. Businesses and Equipment

If you’re a small business owner – or perhaps you’re an owner of a Fortune 500 company – your business is an asset on a personal level. Of course, your business itself has its own assets and liabilities. But as far as your net worth goes, your business is a very big part of the calculation.

Business values fluctuate all the time. That’s what stocks represent – a very small percent in the total value of a business. The value of private businesses are also changing all the time; they’re just not publicly traded. Perhaps you plan to sell your business at some point in the future. It will likely take some time, but you can turn your businesses into a large lump sum of cash. You may also have equipment that other businesses would buy by themselves. These depreciate like most physical assets, though. So you’ll rarely get back what you paid for them.

Especially if you have a business, you want to discuss it – and your plans for it – with your financial advisor.

Make Sure Your Assets are in Order

With a collection of many kinds of assets, your net worth is made up of many components – all of which are important in determining how to plan for your financial future. You also have to be very organized to outline the beneficiaries of you different assets. Your financial advisor not only needs to know of their existence, but also their locations and specific details (that may determine their true value.

It’s possible that getting insurance for valuable assets is a very smart move. But if your advisor doesn’t know you own them, they can’t ensure that the assets are protected. Even if it’s for yourself, you’ll want to document all of the assets you own. If you need some help cataloging your possessions, use our Family Inventory Workbook.

Just click the button below to download your copy and begin organizing your list of assets.

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About Greg Hammond, CFP®, CPA

Greg Hammond is the chief executive officer of Hammond Iles Wealth Advisors, and co-founder of Planned Giving Strategies®. Greg leads a team of professional financial advisors providing customized wealth management and investment solutions for high-net-worth individuals, families, companies, and charitable organizations across the U.S.