What is an Asset?

Tastemaker and Alexander R. take a quick look into what defines an asset in property, while also exploring some general points that help to tell whether an asset will be good or bad as an investment piece.

Simply, an asset is any piece of property that is valuable or useful in any way.

The word ‘asset’ is a broad term, much like the word ‘thing,’ that can be applied to a wide variety of both physical and non-physical property. Just like the word ‘thing’, though, ‘asset’ is not itself defined as good or bad, and relies upon context for the value to become clear. The current confusion is the colloquial definition of asset implies a good investment which is often not the case.

There are two distinct kinds of assets as investments: Good assets, which hold their value and usefulness without maintenance, and bad assets, which either depreciate with age or use, or require extensive maintenance to continue making use of them. For each, we’ve provided a thorough example to help illustrate what we look for.

Good Assets

A good asset is one that maintains its value even during normal associated use. 

We like the example of a good asset being land. As an asset, land has a set value based on location that increases proportionally with demand, a variable that has been near constant throughout all of civilization. During ownership, land can be used for a multitude of purposes while still continuing to retain the intrinsic value of its size and location. If you build a house on the land and live in it, the land will still retain value. If you farm the land, the land will still retain value. If you do nothing with the land, the land will still retain value. This is because, in most cases, value of land is entirely derived from the size and location with some special consideration made for natural resources. Depreciation is usually caused by avoidable actions not intrinsic to the upkeep of the land, like chemical dumping, excessive deforestation or removal of natural resources. Conversely, appreciation often occurs at a rate proportional to demand, which can either offset or negate the costs of property tax, if applicable.

Examples of Good Assets:

  • Assets with passive usage not requiring unique storage. This can include: artwork that can be displayed while being technically stored with low risk and environmental control, like framed paintings; hardcover books requiring only a dry location to be maintained; collectibles that can be displayed as decoration while in their most desirable condition.

  • Assets with usage that offers more valuable benefits usually inaccessible. This can include: memberships that offer physical perks of ownership; memberships that offer significant discounts that decrease the cost of items relevant to the owner’s lifestyle more than the cost of the membership; assets that offer a capability not afforded without them like recreational equipment or recreational transportation.

  • Assets that deal in demand based off of basic needs like food or shelter. This can include: assets capable of producing food like farmland or livestock; assets capable of satisfying demand by sheer existence like land; assets that allow for enhanced distribution of basic necessities like storage areas, facilities, or freight transportation.

Bad Assets

A bad asset is one that loses value due to unavoidable factors if not maintained at a cost to the owner. 

An accessible example of a bad asset would be a second car. Barring outlier examples of collector cars or exclusive models that are in demand for other reasons, cars have financial value only for the sum of their parts, and usually only value outside of that as a functioning whole. A car, if driven often, will depreciate. A car, if used regularly, will require maintenance to continue to be used regularly. A car, if used normally, will cost to insure, register, park and fuel.

There are, of course, more ways to derive value from an asset than financial worth. If you enjoy an asset recreationally, for example, you can weigh your enjoyment against the total cost. If an asset makes a task in your personal life easier for you, it can be viewed a positive. If an asset affords some sort of status, like a membership, value can be placed in that. 

While this can all get very clinical, we want to remind you; our position has never been exclusively focused on practicality, we merely hope to encourage our audience to consider the future while enjoying the present.

Examples of Bad Assets:

  • Assets that require the purchase of a similar asset to avoid their depreciation through use. This can include: shoes that lose value once worn, requiring a second pair of shoes to wear in the interim; collectors cars that do not appreciate unless off the road, stored and insured at significant expense, while also requiring additional vehicles for transportation or trailering; collectible toys whose value is dictated by new condition.

  • Assets that are based on trend markets. This can include: collectibles like art that are purchased for financial value rather than enjoyment, and are only worth their relevance in a larger conversation; items that have limited use in conjunction with a specific time or event like concert tickets, passes, or vouchers with expiration dates; most items used for social media trends like reviews or review content.

  • Assets that are volatile in demand due to being tied to a single use. This can include: production equipment for producing a single item, product or material; technology used for entertainment within a single format (DVD players, turntables, slide projectors); items that rely on a specific kind of fuel or substance for continued use that may rise in price, demand, or regulation.

Tastemaker, and Alexander R. “What Is an Asset?” Tastemaker., Tastemaker, 19 June 2024, www.tastemaker.online.