What is a Safe Asset?

A safe asset (usually a physical asset rather than a security) carries a low degree of liability for its owner. In more technical financial terms, safe assets are similar to cash -- they carry little risk of loss (or gain).

How Does a Safe Asset Work?

For example, John Doe has a 10-foot-deep pool in his back yard, which is in a neighborhood full of kids. He also has a toddler and no fence around the pool. Though the pool may increase the value of his house, it is a dangerous asset because it carries a high degree of liability for John if a child falls into the pool and drowns. A safe (or safer) asset would be a kiddie pool.

Why Does a Safe Asset Matter?

Plenty of assets are dangerous: motorcycles, construction equipment, even commercial real estate. For legal risk purposes, investors and companies should minimize the number of dangerous assets they own, and they should expect to pay higher insurance premiums to cover the liability involved with owning them. Many owners of dangerous assets place them in limited liability corporations or other entities to limit the amount of personal risk exposure they bear. Safe assets generally do not carry these burdens.