A real asset verse a financial asset what’s the difference in how do they work together. I’m clay; let me explain whether you’re talking economics or more finances. In general, this is a very foundational concept that you need to know because, in all actuality, everything is built from the ground up no pun intended as you’re about to see as far as these two concepts are concerned. So first off, let’s talk about Real Assets Vs. Financial Assets.
What a real asset
what a real asset is well, let’s focus on the word real means that this is some factory. So we have the smokestacks, so you have you know some more those are supposed to be trees, but I’m going to call those houses. You have more land houses but point being real asset island its factories its machines it’s also this to knowledge, so if somebody’s got a well. I know how to do fill in the blank, then that would be a real asset because that is you know knowledge that’s probably of the most potent assets out there. Still, it would be considered a real asset.
So that’s what a real asset is all about literal physical things, and these authentic physical things can be used to produce they have a productivity aspect to them to generate things for an economy so in this situation let’s just say that all this promise me you’re not going to make fun of my artist abilities there but in this situation let’s just say that these real assets so you have the factory you have that that the workers you have the knowledge is all for oh my that’s a car okay so this real asset is going to work together to form a car but here’s the thing okay that’s great you have these real assets you have all this stuff but what do you actually need to take these real assets and actually form a car
You actually need money right I mean you need somebody you need to pay employees you need to actually build the factory you need to actually pay for the equipment that that takes money so sure to get a car you definitely need all of this but in order to have all this you need money, and that is where this next part comes in. This is where a financial asset comes in a plane. Now as far as a financial asset there’s nothing there in the sense of you know there’s no dirt there’s no land there’s no wow I’m looking at I’m standing in the factory it’s literally just pieces of paper but what these pieces of paper represent is where all their power comes from. I want to say that again, they’re just pieces of paper, but what these pieces of paper represent is where the power comes from, and in most cases, these are stocks or bonds.
There can be other types of financial assets but for simplicity sake stocks and bonds. What does the stock and bond actually doing well a stock and bond is allowing Bob over here say you know. What Bob is saying? He doesn’t know how so he does not know how but what does he know, how well he doesn’t know? how to make a car he doesn’t happen . Now he doesn’t have the employees. He doesn’t have the factories. He does not know how but what he does know is you know. What I want to make some money from cars, so is this possible for Bob who has no knowledge. He has no factory. He has no machinery. He has nothing can Bob still make money from the production of cars yeah. He can’t make money how can Bob make money well he’s going to come over here and get involved with the financial asset and the financial asset, in this case, some sort of stock or bond is going to be, what does this? It’s going to give the company the real asset the money that it actually needs to make the car. So do you see how that works it’s almost like a chicken and an egg type thing well what’s more important? They’re both very very important because like said you couldn’t have the car unless you have the real assets.
But just because you have real assets well I mean that still takes money to take advantage and utilize those real assets, and that’s where financial assets come into play, and that’s where Bob or URI when you invest into the stock market. For example if you know what the stock market is and you buy a stock. You are getting a financial asset and that stock that financial asset in one form or another is helping to finance some sort of real asset so if you buy a stock in Apple.
Take Apply Company As Example
Apple is a company right they have buildings they have products they have employees they have all that they have machinery. So when you’re and getting involved in Apple. When you were buying a stock an apple. I mean I don’t know how to make a smartphone I don’t know how to do a computer. I don’t know I don’t have employees to do that I don’t have machinery, but I can still make money off of Apple because I can get involved with the financial asset. Which helps in benefiting the real asset going back to the whole chicken and egg thing how does this all actually work together well the true sequence pretty much goes like this there is an idea first.
What do I mean by that well first off just because you have an idea you have to make sure do the real assets exist to be able to make that idea possible I mean you could have the greatest idea ever but if there’s no literal land factory employees knowledge of how to do it because there’s a big difference we now have an idea.
I have a knowledge but if there’s none of this well then the idea that’s what we would call not a very good idea for the time being. There actually is real assets available to make that idea come true well, then you still need at that point where you drop down in the financial asset. So sure in some cases you could say well with the most important thing is the real asset to which I would agree but you can also make a very very powerful argument that well that’s still pretty worthless if you don’t have any money to actually get the real asset in our example, you don’t product produce the car, but that is how real assets work and what they are real is very literal.
There is some sort of real piece of dirt land machinery employees knowledge, and then financial are just pieces of paper, but those pieces of paper are very powerful. They allow the real asset to spit out a product, and then they allow you and I you know everyday people to make money off of something that really we have no knowledge or capability to do on our own so that’s how you would explain it that’s how it all works like I said very basic very foundational concept where you really need to understand how this works because from
there that is where all other you know you can economical, and you know just kind of Business and Finance things you know arise from if you do have any other ideas for these sorts of clay explained videos please in the comment section I’m all for ideas.
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