Assets can be classified in many ways and one way of classifying them is by segregating them into physical and financial form. Given below are some of the differences between physical and financial assets –
- Physical assets are those which one can see, touch and hold onto physically while financial assets are those which are documents of ownership and therefore they are in paper form and not in tangible form.
- Examples of physical assets are piece of land, building, gold bars, cars, furniture, electronic items etc…, while examples of financial assets are fixed deposits, bonds, derivative instruments, life insurance policies, gold ETF and so on.
- While physical assets like car, machinery tends to depreciate in value because of wear and tear whereas financial assets like fixed deposit, stocks tends to appreciate in value over long period of time.
- A person who is buying physical property is doing it to satisfy his or her basic need so if you are buying a home you are doing it because in that home you and your family would be living or if you are buying a car you are doing it so that you can travel easily. While a person who is purchasing financial instruments is doing it for investment and saving purpose. However both physical and financial asset sometimes overlap which implies that same thing can be physical property for one and financial instrument for the other.