Level 1 Assets
Candlefocus EditorOne of the most commonly known Level 1 asset types is cash and cash equivalents, such as money market accounts or checking and savings accounts. These instruments typically have very low or nonexistent credit risk, making them the safest and most liquid form of investment.
Government bonds, corporate bonds, municipal bonds, and treasury bills are typically considered Level 1 assets as well. While these instruments may have a bit more credit risk than money market accounts, they are still regarded as low-risk investment vehicles because of their backing by a government or well-established business. Generally speaking, assets with a maturity of one year or less are considered Level 1 assets.
Level 1 assets are attractive investments for those looking for a safe and liquid investment. As such, many investors regularly use them as part of their overall portfolio strategy. They provide a measure of safety, in addition to potentially providing smaller, but steady returns. While not always providing the same returns as growth investments or stocks and mutual funds, they are often the cornerstone of a diversified investment strategy to mitigate potential downside risk.
Level 1 assets can also be used as collateral for loans, investments, and other transactions. They are generally accepted as the most reliable forms of security, and serve a vital role in transactions that require a high degree of trust or certainty.
Overall, Level 1 assets are ideal investments for those who are looking for low risk and reliable returns. They provide a safe and liquid way to diversify a portfolio and serve as a hedge against riskier investments. Financial service providers also widely accept these assets as forms of payment and collateral, making them as versatile as they are secure and reliable.