Long term assets are property, plant and equipment (PPE), bonds, stocks, land, gold, retirement schemes, mutual funds among many others. There are various advantages of long term assets. Let’s quickly glance what are the plus points of long term assets.
Disadvantages Of Long Term Assets
Cash: Long term assets due to their lock in period prove to be useless if you are in need of cash urgently. If such is the case then current assets come in handy.
Depreciation: Depreciation though beneficial has its own pitfalls. For example investing in PPE sometimes results in loss when you pour in more cash than the purchase value in order to maintain it. Also an old building is more difficult to sell. Same goes for vehicles, equipments, machinery and computers. Also non tangible assets undergo amortization which is similar to depreciation.
Pledge As Collateral: A borrower cannot pledge long term asset in order to take a loan. Here current assets come in handy.
Risk: Investing in long term assets is always risky. If your research and planning is poor then there is a huge margin for loss. The market is usually volatile and very few investors can gauge the market statistics. Therefore consulting a tax professional is always deemed wise. Similarly investing in properties is risky because the governments change polices and rules from time to time thus affecting the purchase and sale of property.
Huge Capital: In order to invest in long term assets one requires a huge capital or is required to take a loan. So not everyone can afford to invest in a long term asset. For example if a small business wants to expand then it needs to check its current asset and whether it is enough to buy new fixed assets. Usually loans are taken out in order to buy long term assets for business purposes. However one needs to keep in mind that the loan has to be repaid over the years with interest. So the business has to perform remarkably well in order to pay off loans.