MAJOR ASSET CLASSES
Before you can establish an appropriate portfolio of investments, you must understand the various asset classes, their risk profiles and their past performance. It is worth spending the time to learn about all the different asset classes, as this is the only way that you can make informed decisions about what is best for you.
Go to our learning centre and take the online courses or download our e-book. To give you some idea of tthe main asset classes, we have listed a very brief summary below:
Cash – These are typically short term investments with a low risk of capital loss. In many countries Bank and Building Society accounts are guaranteed by their various regulatory bodies.
Fixed Interest – Governments, corporations and local government authorities issue fixed interest investments, also known as Bonds. They typically offer higher returns(yields) than cash, but their value can fluctuate, if they are not held to maturity. When interest rates rise, bond prices fall and vice versa.
Property – Investors can buy directly into an investment property, but this is an illiquid investment
(hard to sell quickly), so for inclusion in an investment portfolio investors tend to buy property indirectly
through companies or mutual funds/unit trusts that specialize in this area. Listed property securities can be easily traded on the share market.
Shares – Share investments give you part ownership in a company and a right (in some cases) to receive dividends from these companies. Shares tend to be more volatile than the other asset classes. However, over time, shares have provided higher long-term returns than fixed interest and cash.
Gettingthe right mix of these asset classes in your portfolio will make all the difference to your eventual returns.