What Are Asset Classes?
By: Lee A. Blackman
Before we get into ‘Asset Classes’ we must understand what is considered an asset in finance.
‘In financial accounting, an asset is any resource owned by a business or an economic entity. It is anything (tangible or intangible) that can be owned or controlled to produce value and that is held by an economic entity and that could produce positive economic value.’
- Courtesy of Wikipedia -
In finance, an asset class is a group of financial instruments that possess similar financial structure, are typically traded in the same financial markets and are sometimes subject to the same regulation. Even though assets within the same asset class are subjected to the same regulations, this is not always the case for futures on an asset. As the underlying instrument they are often considered part of the same asset class and are subject to different regulations depending on the type of underlying instrument it represents.
Most investment funds, often referred to as exchange traded funds (ETF) are comprised of the two main asset classes of securities, equities (stocks) and fixed-income (bonds). Some also hold cash, foreign currencies and money market instruments often referred to as cash equivalents.
In addition to stocks, bonds, cash, foreign currencies and money market instruments, larger funds add real estate, infrastructure and commodities to their list of commonly held asset classes. So be it resolved that an asset class is expected to exhibit a unique risk, return and perform differently based on its market environment.
Here are main traded assets:
Stocks or Equities
Fixed income or bond investments
Foreign Currencies or foreign exchange
Infrastructure as an asset class
Mr. Lee A. Blackman (Consultant)
As a seasoned and experienced financial expert, I advise clients that some he most effective investment strategies involve diversifying investments across broad asset classes like stocks and bonds, rather than focusing on specific securities which are carry more volatility or risk. Diversification, hedging and speculating are techniques employed by experienced fund manager and traders to help reduce risk, however, is no guarantee to protect against a loss of income.
The purpose for asset allocation is to create a mix balanced of assets that have the potential to improve returns, while meeting your preferences of investments within asset classes, goals, investment objectives and tolerance for risk subjective to market volatility.
Having a diversified portfolio for your asset classes investment helps reduce volatility by including several asset classes in your long-term portfolio to hedge one asset class to offset the downward movement of another.
Imporio Consultants Limited is associated and work directly with top rated corporations, investment banks, fund managers and registered exchanges.
Contact us today as let us help you structure your corporate or individual diversified low risk investment portfolio.