If you’re like most people, just the act of measuring something helps to change it. For example, if you’ve ever counted your daily and weekly steps using a fitness tracker, your activity levels probably increased. Keeping track of your investable assets can help you stay on the right track towards a brighter, more comfortable future.
To set up a portfolio that’s ideally calibrated for your goals, advisors ask: How much are your investable assets worth? If you don’t already know the answer, keep reading…
Defining Your Investable Assets
Any financial holdings easily converted into cash are investable assets. This is a whole different animal than your net worth, though it is easy to get the two confused. In fact, bank loan officers usually ask for net worth when determining your fitness for a loan. Net worth is the combination of all of your assets minus all of your liabilities (debts).
If you’re curious what you have when it comes to investable assets, on the other hand, grab a calculator. According to industry experts, these assets include:
- cash and bank accounts (checking accounts, savings accounts, certificate of deposit accounts)
- securities such as stocks and bonds
- investment accounts that can be quickly converted into cash (money market accounts, some mutual funds)
Once you’ve added up these items, you need to subtract your consumer debt from that number. Consumer debt includes your credit card balances and loans, such as your car loan and student loan. You do not need to subtract your mortgage.
Other Assets That You Shouldn’t Count Under the “Investable” Umbrella
Things that are not included under the umbrella of investable assets are items that you can’t sell quickly, such as:
- your primary residence
- your vacation property (think of the cottage you own with your siblings or that hunting land you never visit)
These items are included when you add up your net worth but do not count toward your investable assets. If you have an ownership share in a company or a long-term security you cannot sell right now (or anytime soon), these things are also not part of your investable assets.
Why Does It Matter?
Keeping track of your investable assets will help you to increase your investable assets. You may also be more comfortable taking on a bit more risk as the amount of money you have to invest increases. In other words, knowing “your number” may influence your risk tolerance, at least a little bit.
In addition, sometimes it helps to combine your investable assets. For example, banks often have tiered interest rates for savings accounts. This means you earn more interest when you combine money from two separate accounts into one to keep the minimum balance above a certain threshold. Some mutual funds lower commissions at certain levels of share purchases — it’s worth finding out. However, keep in mind that the FDIC only insures bank deposits up to $250,000 per person per institution.
If you think it’s a waste of time to keep tracking your assets, it might be time to think differently. The number of U.S. households with more than $5 million in investable assets hit one million in 2016. That’s a 5% increase from 2014. If you’d like to join them, create a plan and make it happen!