Overview of the Asset Classes

Investing in several different asset classes can provide you with a number of benefits. In order to minimize risk and reach your portfolio goals, it is important to understand all of the different asset classes that are available. Here are a few things to consider about the major types of asset classes.

Asset Classes

An asset class is a group of investments that have the same characteristics and qualities. The major asset classes are equities, fixed-income securities and money market instruments. As an investor, it is important to have a certain amount of money allocated to all of these different types of asset classes. Every investor is going to have a different mix of assets in his or her portfolio. In some cases, some individuals will also include real estate and commodities into the asset class category.

Equities

The first category of asset classes is equities. This is basically another word for stocks. When you invest in stocks, you are going to become a partial owner in a company. This means that you have certain ownership rights associated with the company. You will be able to vote in company matters, and you will be able to have a claim on all of the assets in the company. This class of assets is going to have the most potential for growth and capital appreciation. Many investors make the majority of their portfolios out of this class of assets.

Fixed Income

Fixed income securities are another type of asset class. Bonds make up the majority of this asset class. When you invest in bonds, you are going to become a creditor to the organization that issued the bond. You are essentially lending money to a business or a government. The entity will then pay you a regular interest payment, and you will receive the principal that you invested at the end of the bond term. This type of investment is looked at as a little bit safer than equities because you are going to be able to get your capital backed easier if the company goes into default.

Money Market

The money market is another asset class that you could potentially invest in. People will get involved with this type of asset class by putting money into a money market mutual fund or a money market account with a broker. The broker then uses the money to invest in very safe investments, such as T-bills and commercial paper.

Real Estate

Real estate is another asset class that you could get involved in. You could get involved in real estate directly or you could invest in an REIT, or real estate investment trust. Since real estate is a real asset, it is always going to have some type of value in most cases.

Commodities

Many experts would also consider commodities as another asset class. Commodities are things like grain, corn, wheat, soybeans, oil, gold, silver and many other items. Many investors like to put a portion of their portfolio into precious metals to protect against inflation.

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