What are Asset Classes?

Howdy Wall St. Willy! Some time ago, on TV, I heard about an asset class. But what is an asset class anyway?

An asset class is a group of assets in which you can invest your money. Everything within a specific asset class also shows similar traits.

What do you mean by similar traits? And how does something become part of an asset class?

Everything within an asset class would have similar risks and would provide similar returns.

For e.g., equities usually go with higher risks but also usually provide higher returns, whereas fixed income securities usually have a lower risk and provide lower returns.

Items in the same asset class are also usually subject to the same laws, including tax laws.

Well, can you give me some examples of asset classes?

Some examples of asset classes are Stocks or Equities, Fixed Income or Debt, like bonds, Cash and Cash equivalents like Money Market instruments, Real Estate, Commodities like Gold, Works of Art etc.

Well, what asset class do Certificate of Deposit or CDs belong to?

CDs belong to the asset class of fixed income.

What asset class does crude oil belong to?

Crude oil belongs to the asset class of commodities.

So, why are asset classes even important to me?

Asset classes help with diversification but that’s a topic for another time!

Thank you very much for telling me about asset classes, Wall St. Willy.

You are welcome, Sooper Cooper. Remember, Finance is Your Friend!

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