The old saying goes, never put all your eggs in one basket. Any effective investment plan focuses on having an active asset allocation strategy in place. Guide to Asset classes are the essential building blocks of an asset allocation strategy. Moreover, a team of securities having similar characteristics is called an asset class. However, they pursue identical regulations and laws and also perform related activities in the market place. Also, the asset class is a huge basket. Moreover, it contains its own listed financial products sharing common characteristics. Parameters like returns, risk, liquidity, etc. are similar.
Asset Classes are the building blocks of a sound investment strategy. An asset class is a bunch of relative investments. Moreover, it is a bunch of investment with comparable characteristics. Moreover, they also behave similarly in the marketplace. Assets within a similar asset class follow the same rules and regulations. Moreover, vehicle investments are also considered as categories of the asset class.
Moreover, they are used in the process of diversification. Each guide to – asset classes are believed to copy various risk — the characteristics of an investment return. Moreover, they also perform individually in an ongoing market condition. Moreover, investment in different asset classes assures an amount of variety. However, your return increases and the risks reduce with the diversification.
Various Asset Classes
There are various asset classes available for investors to invest and diversify their money. The traditional candidates are:
The International Bonds;
The stock and bonds often get subdivided into more specific groups:
The Mid Cap Stocks;
The Growth Stocks;
Developed Market Foreign Stocks
Emerging Market Foreign Stocks
Long Term Government Bonds
Long Term Corporate Bonds
Intermediate-Term Government Bonds
Intermediate-Term Corporate Bonds
Developed Market Foreign Bonds
Emerging Market Foreign Bonds
The Market Neutral Funds;
A Guide To Asset Classes
Equities are the riskiest asset class available. Furthermore, they also provide investors’ portfolios with growth over the long term. However, equities are the only asset class which consistently generate inflation-beating returns. Moreover, equity returns beat inflation by 6-8% per annum over the long run.
Bonds provide investors’ portfolios. This is with a safety net against the increased risk that is inherent with equities. Moreover, they do this by providing investors with steady cashflow. Therefore this is through interest payments, moreover, on the bonds at regular intervals.
Gold as an asset class serves as an excellent hedge against inflation. Moreover, the Gold has consistently returned 2% over and above inflation for the past 28 years. Moreover, Gold is also highly liquid as an asset class because it is a global standard. Therefore it means gold can be bought and sold at any time, anywhere across the world.
Investments in real estate include both owned house properties, and those who are let out on rent. Moreover, there are also alternative investments which include venture capital, private equity, hedge funds, commodities, and so on.