Hard Asset

What is a Hard Asset?

Hard assets can be defined as physical items that are tangible, i.e., that can be touched and felt and can be owned by an individual or company for long term usage with an expectation that such assets will generate some value in the future and thus appreciate.

Classification of Hard Assets

These are classified as follows–

  1. Buildings
  2. Equipment
  3. Machinery
  4. Furniture
  5. Vehicles
  6. Gold, etc.
Hard-Assets

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Hard Asset Practical Scenario Example

A newly set up company involved in the production of manufacturing aeroplanes has come up in New York. The executive management of the company has utilized a certain amount of infused capital to buy certain new machinery. It will be used in the assembly line to produce parts of the plane. The company has also bought a large building area for manufacturing the plane.

To manufacture the plane, the company needs to buy steel and aluminium. Thus, all the assets like building, machinery purchased, steel, and aluminium are examples of hard assets. The machinery purchased for manufacturing the plane are classified as long term hard asset, and its usage is estimated for more than a year, whereas, the inventory such as aluminium and steel are considered short term hard asset as they will be consumed within a year.

Advantages of Hard Assets

Disadvantages

Limitations

  • It possesses minimal liquidity as they are not easily convertible to cash.
  • The percentage return of soft assets is more when you invest in the correct stock or bonds as compared to the hard asset.
  • It always involves huge monetary transactions for which, even at times, there is a requirement of debt.
  • It is only restricted to their place of investment and cannot take advantage of global markets.

Important Points

  • The prime characteristic of hard assets is its tangibility.
  • They categorize as long term hard assets and short term hard assets.
  • Act as a vital substitute to hedge inflation
  • They possess an intrinsic value, which is subject to fluctuation.
  • They may be traded in the primary or secondary market, e.g., commodity.
  • These are indirectly proportional to soft assets, i.e., when the price of soft assets increases, the price of hard assets decreases, and vice versa.

Conclusion

A company or individual needs a mix of both hard and soft assets, and thus both are equally important. Both have pros and cons and must be decided based on executive management’s requirements and strategy. Hard assets, though, serve long term usage for the company should be invested in thoroughly by all companies to save the company from unforeseen circumstances if faced any.

This article has a guide to What is a Hard Asset & its Definition. Here we discuss the classification of hard assets along with examples, advantages, disadvantages, and limitations. You can learn more about from the following articles –

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