What Is Asset Class And Why It Is Useful?

Asset classes are a combination of similar investment channels. They behave similarly, have similar characteristics, and same rules regulations.

There are some arguments regarding the exact number of asset classes. But, some market analysts, as well as financial advisors, have divided assets into 5 different categories-

Stocks or equities – Stocks are shares of ownership announced by publicly traded corporations that are traded on stock markets for instance NYSE, NASDAQ, FANGMAN etc. You can probably benefit from investments either by an increase in the share price or by getting dividends. The equities asset class is also subdivided by market capitalization in small, mid, and large caps.

Fixed-income or Bonds investments – Fixed income investing is investments in debt securities that give returns in the form of interest. These kinds of investments are considered less risky in comparison to other investing options.

Real estate – Other physical assets or Real estate is an asset class that protects against inflation. These assets are tangible in nature which consider a real assets.

Money market funds – The main benefit of cash or cash equivalent investing is their liquidity. Money kept in the form of cash can be simply obtained at any time.

Futures contracts And Other derivatives – This asset class includes some futures settlements, spot and foreign trade, opportunities, and financial derivatives. Derivatives are based on derived from, an underlying asset. For instance, stocks are derivatives of stocks.

Asset Classes and Diversification 

Being an investor you should understand the basic concept and general investment categories. Diversification is the method of decreasing overall risk by spreading investments in various asset classes. During some periods of time when stocks are doing good, real estate, bonds, and other commodities may not be doing well as expected.

Why Are Asset Classes Useful?

Investing in various asset classes guarantees a definite amount of variety in investment selections to expect less risk and more investment return.

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