How Do You Calculate Investable Assets

To make better financial choices, you must know about your investable assets. These assets are unique to other assets as you can turn them into cash like savings, stocks, or retirement funds. 

By calculating and managing them, you can set clear goals, reduce risks, and make better investment decisions. If you have a plan for the future or need quick access to cash, you must understand your investment assets. 

So, want to learn more? Here, in this blog, I will explain the definition of investable assets and why they matter the most. You will also learn the steps to calculate it and how to manage them in simple terms. Also, know the common mistakes that you should know to avoid them. So, let’s get started. 

What Are Investable Assets?

The assets that you can easily turn into cash are known as investable assets.  These include money in your bank accounts, stocks, bonds, mutual funds, and retirement accounts. Retirement accounts like a 401(k) may have penalties for early withdrawal, but you can consider them as investable assets.

Keep in mind that things like your house, car, jewelry, or art are not investable assets. These take longer to sell and cannot provide quick cash.

Investable assets are important because they show how much money you can access in an emergency. Lenders also look at your investable assets when deciding if you can handle a loan. If you have more investable assets, you are seen as more financially secure.

Managing investable assets well is important. It is good to spread them across different types of investments, like stocks and bonds. This lowers risk and protects your money if one type of investment loses value.

Why Calculate Your Investable Assets?

Now, you may ask if it is important to calculate your investable assets. Well, you must calculate your investable assets so that you can easily manage your risks and fix your goals. So, the reasons are: 

• Financial Goals

Knowing your investable assets helps you set clear financial goals. You can see how much money you have available to save or invest. This is helpful when planning for retirement, buying a home, or reaching other financial milestones.

• Risk Management

Investable assets let you spread your money across different types of investments. This reduces the risk of losing everything if one investment fails. Understanding your assets helps you manage risks and build a safer financial plan.

• Investment Strategy

You always get a proper guideline from your investable assets to make your investment decision. Remember that even financial advisors use this information to suggest ways to grow your money. You can explore many options based on the assets that you have. With the calculation, you can create an investment plan that goes with your goals. 

• Wealth Assessment

To get a clear view of your financial health, you must calculate your investable assets. These assets show the amount of money that you can access when you need it. You need this calculation so that you get money during emergencies or when applying for loans. 

Even lenders also check your assets while deciding if you qualify for credit. With its help, you can adjust your spending and savings. 

Steps to Calculate Investable Assets

Follow the steps below to calculate your investable assets: 

1. List All Liquid Assets

You must start your calculation by adding up all the money you can access quickly. Remember to include cash, savings, and checking accounts here. Keep in mind that you must add things like certificates of deposit (CDs) or money market accounts. The reason is these are easy to convert into cash that you can consider as liquid assets. 

1. Include Semi-Liquid Investments

The next step you must do is to include investments that you can cash out without any issues. Consider your bonds, stocks, and mutual funds as these are known as semi-liquid investments. Also, add here retirement accounts such as IRAs or old 401(k)s. However, some of these accounts might have some restrictions or penalties if you withdraw funds before the deadline.  

1. Exclude Non-Liquid Assets

Now, if you have any assets that you can’t easily turn into cash, then you must exclude them from the list. These assets are known as non-liquid assets where you can include your house, car, or collectibles. These are expensive and hold value but they can’t be converted into cash quickly for investment purposes.

1. Adjust for Liabilities

Now you must include here your debt while you are calculating investable assets. Remember to include here other things such as credit card balances, student loans, or personal loans. You can’t include your mortgage as a part of your liabilities here. Remember that these are usually treated as an expense for this purpose. 

1. Add Accessible Cash Reserves

Now, we are in the last step of calculating your investable assets. In this last step, you must include any cash you have set aside for emergencies. This could be a rainy-day fund or extra savings you keep on hand just in case. These reserves play a big role in understanding your financial situation.

Tools and Resources for Calculation

You need tools and resources so that you can calculate your investable assets with their help. So, the tools are: 

• Spreadsheets

You can use spreadsheet programs like Excel or Google Sheets to list your assets, debts, and investments. Through this, you can calculate things like price-to-earnings (P/E) or price-to-book (P/B) ratios. Spreadsheets work well for basic tracking but can be time-consuming if you are dealing with a lot of data.

• Financial Software

Financial software helps you organize your finances quickly and easily. Tools like Mint, Quicken, or Personal Capital connect to your accounts and track your money in real-time. They calculate key financial ratios and show you charts and reports to understand your finances better. You get a clear picture of your money without manual input by using these tools.

• Consult a Professional

Financial advisors or accountants can analyze your situation. They can easily recommend you the best steps to grow your assets. They are experts at handling complex data and can provide valuable insights. It is true that they charge a fee however, their advice can save you time and help you make better decisions.

Common Mistakes to Avoid

Mistakes in investing can cause confusion and it can lead to bad decisions. You must know these mistakes so that you can avoid them if you encounter them. So, the common mistakes you know to learn about are: 

When You Miss Some Assets

Sometimes, a major human mistake is to forget about certain investments, like retirement accounts, savings bonds, or smaller assets. These might seem minor, but they all add up. Always take the time to include everything in your portfolio for a full picture of your financial standing.

Don’t Take Debts Seriously 

A lot of people focus only on their assets and ignore their debts. Loans, mortgages, and credit card balances need to be subtracted from your assets to get your net worth. Make sure you account for what you owe when doing your calculations.

Not Keeping Things Updated

The value of investments changes over time. Some people calculate their assets once and don’t look at them again, but remember that this leads to a mistake. Check your portfolio regularly to update it regularly. Ensure that you update your portfolio at least a few times a year as it makes sure your numbers are still accurate.

When You Expect Too Much Growth

You may assume that your investments will grow faster than they actually do. But in reality, this is not the case. Use realistic growth estimates to avoid setting yourself up for disappointment.

Ignoring Fees and Taxes Is A Serious Issue 

Fees and taxes can deplete your investments over time. Trading fees, management costs, and taxes on profits can add up. Don’t forget to include these when calculating the value of your assets. 

How to Use Investable Asset Calculations

After done calculating assets, you should know the ways to use these calculations. For a quick summary, to calculate your investable assets, you must add all the cash and liquid assets you have. 

Remember to include here money in your savings, checking accounts, stocks, bonds, and retirement accounts. Also, subtract any debts you owe such as credit cards or loans. Then you will get a clear picture of your investable asset calculations. 

Learning about your investible assets is essential as it shows you the amount that you can invest easily. Banks and financial advisors use this info to help guide your investment choices.

Moreover, always keep in mind that you must check your investable assets regularly. If possible check it monthly otherwise, ensure that you check it at least once a year. With it, you can stay informed and make the right decision on time. 

Track every piece of information to make a better financial plan so that you can achieve your financial goals.

Conclusion

In the end, assets that you can turn into cash quickly less than a day are considered investable assets. Cash money, savings money, stocks, and bonds, etc are some examples of these assets. For any emergency, these assets work as a backup as you can make the cash and use them as early as possible. 

So, you must calculate your investments to fix your financial goals, risk management, and lastly wealth management. Follow the discussed steps here to calculate your investable assets. You should start with a list of all your liquid assets, adjust your liabilities, and lastly add accessible cash reserves. 

Use tools such as spreadsheets, and financial software and if needed then consult a professional. Avoid all the common mistakes that are shared here. Use these calculators to make the right financial decision and invest your money more effectively.