Asset Class
Candlefocus EditorEquities are one of the key asset classes, as it refers to stocks or shares of ownership of a company. Equity investing is generally viewed as high risk, but has a potential for high returns. When diversified, equities can help create a solid portfolio foundation for long-term growth.
Fixed income is another important asset class. It includes bonds, notes, and other debt instruments. This type of investment is lower risk than equity, but also offers lower yields in return.
Cash equivalents are considered a low-risk asset class, as they include savings accounts, money market accounts, and certificates of deposit. These investments do not provide much return, but they are seen as safe investments.
Real estate is also widely considered an important asset class. It encompasses residential and commercial property, as well as raw land investments. Real estate has been a great way to generate higher returns over longer timeframes, as properties increase in value over time.
Commodities are physical goods like gold, silver, oil, and other agricultural products. Commodities are generally held as a hedge against inflation and market uncertainty.
Lastly, currencies are usually included in an asset class. They represent foreign exchange, and can help investors hedge their portfolios against currency risk. Mild corrections in the stock market can cause investors to flock to the “safety” of currencies.
Asset class diversification can make sure that an investor’s assets are optimally allocated to reduce risk while still providing steady returns. Investment advisors often suggest a mix of low-risk and high-risk investments to help spread the risk across multiple asset classes. By understanding the different asset classes and their characteristics, investors can make smarter decisions about their investments.