What Are the Five Major Asset Classes?


Individuals who are just beginning to turn their focus to commodity, cryptocurrency, diversification, dividends, and investing may have heard of what is known as an asset class. An asset class is a group of investments that share similar characteristics and are impacted by the same rules and regulations, behaving similarly in the marketplace. While there’s the occasional new asset class, the standards between the different asset classes have held up.

There are several types of asset class categories that investors may be interested in pursuing, but it is important that every investor knows what these classes are and what types of assets lie within those groupings. If you are looking to learn more about these groups of investments, here are the five major asset classes and their breakdowns.

5 Main Asset Classes

1. Alternative assets (real estate and others)

Alternative assets are an asset class that refers to investments that are physical and deviate from the other types of asset classes often referenced. For example, one common alternative investment found within this asset class would be real estate. Real estate on its own can then be further broken down into various asset allocation types (A, B, and C) as well as property classifications that serve to differentiate residential real estate investments like single-family homes or townhouses or commercial real estate investments like retail space and office buildings.

2. Stocks (equities)

Stocks or equities are shares that are issued by companies. As you’ve likely heard, the stock market doesn’t provide you with tangible assets. Core components of the stock market include the market cap, large-cap, inflation rate, and absolute returns. The volatility of the stock market tends to turn many beginner investors away. Even if you have the investment assets to spare, if you’re not as familiar with how the market works, you may want to focus on alternative asset allocation. However, if this is one of the asset class categories that most excites you, then it may be worth market capitalization with your financial derivatives. A third-party analyst may be able to help you navigate the uncertainties and set up a stronger risk-reward profile. When it comes to the stock market, investment advice and investment strategy are key.

3. Fixed-income investments

Fixed-income investments are also more commonly known as “debt” to the majority of the US public. This means lending money to the government or a company in the form of government bonds and deposit certificates. While this is seen as fairly low-risk, full disclosures mean that market fluctuation can impact your dividends down the road. For fixed-income, maturity is key. As one of the oldest traditional asset classes, this can yield a higher return if you are patient and avoid market volatility.

4. Cash and cash equivalents

Cash flow is, of course, low on the totem of risk profiles. Since it’s a physical asset, there’s less of a negative correlation to appreciation and depreciation. Of course, cash flow, on its own, doesn’t grow as an investment fund. While you can always keep adding to your cash equivalents, you won’t reap the benefits of interest on top of the savings’ original content. The correlation of returns is the lowest here but it’s also perhaps the safest undertaking.

5. Futures and other derivates

Futures are a way to profit from short term market movement. It’s an excellent choice for a company that hedged (hedge funds) to turn this profit as trends and market correlation moves both up and down. Taking advantage of this correlation is paramount because the final collection happens without ownership of the underlying asset. To successfully invest in futures, you need to have the right money market instruments.

Of course, there are other investment types like private equity investment, fiat currencies, mutual funds, and cryptocurrencies. But when it comes to the primary asset commodities, these are the ones you need to know about for your portfolio.