Real assets versus financial assets

\The material wealth of a society is ultimately determined by the productive capacity of its economy, that is, the goods and services its members can create. This is what defines real assets. It includes everything physical assets like lands, buildings equipment, and knowledge that can be used to produce physical goods and services.

On the other hand, financial assets include nonphysical financial instruments like stocks and bonds.  Such an asset is different from real assets because they are nothing more than sheets of paper. They don’t produce physical goods and services like real assets. Financial assets are primarily used as claims on real assets. In other words, they are simply claims in the income generated by real assets. For example, an Apple facility producing physical iPhone products is considered to be real assets, while the company generate revenue, we cannot claim the revenue of the company. However, we can buy shares from Apple (financial asset) and earn capital appreciation (income) whenever the company perform well.

Are bonds considered real or financial assets?

Bonds itself are simply a paper of obligation to future payment from the government or corporate to bondholders. Thus, the bond by itself is a financial asset. However, the government of company that are obligated to the payment of bondholders are considered real assets, because they generate net income to the economy. Financial assets, on the other hand, simply define the allocation of income or wealth among investors.


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