What is an Asset Class?

What is Asset Class? Definition of Asset ClassMethod of describing and categorizing items exchanged in the marketplace. Examples of items include investment options like gold, art, or real estate. Categories are determined by physical characteristics and similar performance on the market.

The asset class also determines how items are regulated. Gold belongs to the commodities asset class. Other asset classes include the following:

  • Shares
  • Bonds
  • Property/Real Estate
  • Cash

Many investors also include real estate, commodities, futures, financial derivatives, and on occasion cryptocurrencies to asset classes. Investment funds are generally made up of two asset classes, securities: equities (stocks) and fixed-income (bonds). Some investment funds hold foreign currencies and cash, or money market instruments also called cash equivalencies. Assets can be subject to the same laws and regulations, though this is not always the case.

Asset classes are quite often mixed together to create a stronger diversified investment portfolio and to minimize risks. Investors view investment vehicles, a product used to gain profits, as an asset class category specifically used as a diversification tool. Investment portfolios that only contain one or two asset classes are not diversified and may not prevent the risks an investor endures when there are large swings in the market. Every asset offers various risks and returns and interacts differently with factors in the market.

Asset classes also can be impacted by the news. For instance, a news report may be positive for real estate, but negative for bonds, while having no impact on cash or stocks. Investors will select assets based on various conditions including growth, value, and income. Some investors analyze the investment’s value or performance such as earnings per share. To have a diversified investment portfolio, asset classes should represent multiple risk and return factors and perform differently in various market conditions.

What people ask…

What are the five asset classes?
What are the different asset classes?
What are the 4 asset classes?
What is the riskiest asset class?

See Also…

Asset, Commodity Market, Share, Bond, Property, Real Estate, Cash, Correction

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