Assessing Your Assets

A new year always brings with it the opportunity to inventory your assets, to see what they are truly worth. This is an important facet in wealth building so you can gauge where you're going. If you set out on a journey there are certain tools you need to be armed with in order to navigate a safe arrival. Asset assessment is one such tool to identify the necessary steps needed for you to optimise your portfolio.

Though you might believe that your holdings are not vast enough to warrant this exercise once you have itemised and categorised them you just might find an opportunity or potential pitfall that requires management. This is important because assets are not just tangible; they are intangible too.

Tangible assets

Your tangible or physical assets may include such things as your home, land and other real estate, like property — both natural or manmade — and anything that comes attached to your land or anything built on it. For instance, in addition to that raw land you may have, is there a shed on it with tools or machinery, a boathouse maybe, or a pond, a reservoir or, yes, even a road, these are all assets that should be taken into account when assessing the worth of your tangible assets. Questions you should be asking yourself include:

Can the water supply on the land be monetised? Can I rent the tools? Have the tools appreciated or depreciated? Can the shed be rented for storage? All of the aforementioned have a value, whether tapped or untapped.

If you're wondering if a financed vehicle has any asset value, the answer is yes. But only if the value is greater than the amount you actually owe on it. Meanwhile, how do you determine the asset value of your home if you're paying mortgage? This is also useful information to have, if you are thinking about refinancing your mortgage or borrowing money against your home. Current market value of the house is one thing, but what is your home equity? This is, for most people, your most valuable asset.

Home equity is really the portion of your home you've already paid for. Meaning, your stake in the property, as opposed to the lender's. Unless you inherited the house from some kind relative or a departed spouse that's been already paid off, or you have amassed the financial resources to buy out right you paying a mortgage. Home equity would therefore be the appraised value of the property minus any outstanding mortgages or liens. Paying down your mortgage as quickly as possible, via additional mortgage principal payments if you're able to helps to build home equity. Home improvements such as renovations and additions, when done correctly, also increase the market value of your home and therefore your equity.

Now, let's say you don't have a house or real estate, there are other things that can also be considered assets. Let's say you are in possession of paintings. Art is today considered a legitimate asset class if it can generate even a moderate real return over a period of time. It of course depends on the regard held for the piece and the artist. So, let's say you inherited a sculpture, maybe even a painting, even if you're not big on art, you can be sitting on items of value and don't even realise. Do some research to find out who the artist is and how the figure in the local or international art world. The same goes for jewellery. The trinkets passed down through generations could be only of sentimental value, but the brooch that sparkles so enticingly just might be encrusted with diamonds and not the cheap glass as you believed it to be. Those albums/records you have stored away may also have a value attached.

Don't forget the ones you know, the financial assets you may have — that certificate of deposit or stocks and bonds — these are also considered tangible, deriving their value from contracts.

Intangible assets

These are assets, meanwhile, not physical in form — hence "intangible". So, something like corporate intellectual property — including patents, trademarks, domain names and other things of that nature — is considered intangible. Copyrights are also deemed intangible. So if, say, you wrote a song that a singer uses or an advertising agency incorporates into a commercial, if you are the legal copyright owner, depending on the length, it is an asset. And in today's technological age the code you have written can be classified as an intangible asset. (It can also be tangible if integrated into a finished product that has been valued). Calculating the value of intangible assets, however, can be problematic in that they can be tricky to place a dollar value on them. Tricky but not impossible. How they are often valued is by the ability they have to generate some measurable economic benefit to the owner.

The bottom line

Regularly assessing the value of your personal assets will help you to gain insight into the true state of your overall financial health for multiple purposes, including calculating your personal net worth, applying for credit, estate planning, and even figuring out the true amount of debt you are in. If you've done this in the past, it's time to update your assessment as asset values fluctuate all the time. If you haven't already done so, start today.

"If investors do not know or never attempt to know the fair value, they can pay any price. More often, the price they pay is far greater than the actual value."

— Naved Abdali

Lamar Harris, senior vice-president, in the Office of the CEO, NCB Capital Markets
Lamar Harris

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