Answer:
When it comes to investing their money, many people are content to take a random approach. They may have received a hot tip for a particular investment and decided to plow a large amount of money into it with no regard to the overall balance of their portfolios. However, research has shown that it is through the careful selection of the various asset classes, rather than the individual investments themselves, that people prosper financially. Therefore, the careful selection and distribution of your investments among the various asset classes is likely to prove crucial to the future success of your investment portfolio.
Generally, you should consider five broad asset classes when constructing your investment portfolio: cash, fixed-principal investments, debt, equity, and tangibles.
Cash refers to the most liquid holdings in your portfolio. This asset class includes the balance in your checking account, money market account, and certificates of deposit. Conventional wisdom holds that you should keep three to six months' salary in cash to cover yourself in the event of an emergency.
Fixed-principal investments are those that do not put your principal at risk due to market forces. Fixed annuities and trust deeds fall into this category.
Debt makes up the third asset class. It includes municipal, corporate, government, and government agency bonds. It also covers other debt-secured investments such as collateralized mortgage obligations.
Equity represents an ownership interest in a business entity; this class covers any investment you might make in stocks. It also covers any interest you may have in a closely held corporation or partnership.
Tangibles include your holdings in real estate, art, gold, precious stones, stamps, baseball cards, or other valuable collector's items.
How you choose to distribute your investments among the various asset classes depends on your goals, your risk tolerance, and your expected rate of return. Keep in mind that asset allocation does not guarantee a profit or protect against loss; it is a method used to help manage investment risk. All investments are subject to market fluctuation, risk, and loss of principal. When sold, investments may be worth more or less than their original cost.
Financial planning and investment advice are offered through Sentinel Pension Advisors, Inc. (SPA), an SEC registered investment advisor. Investment brokerage services offered through Sentinel Securities, Inc. (SSI). Member FINRA & SIPC. Sentinel Benefits & Financial Group is the brand name for the Sentinel family of companies, which includes SPA and SSI. This article is not intended to be exhaustive nor should any discussion be construed as legal or financial advice.
FAQs
Generally, you should consider five broad asset classes when constructing your investment portfolio: cash, fixed-principal investments, debt, equity, and tangibles. Cash refers to the most liquid holdings in your portfolio.
What are the 7 asset class? ›
Types of Asset Classes
- Fixed Income. As the most popular among Indians, the fixed income asset class is one of the most trusted and oldest forms of investments. ...
- Equity. ...
- Real Estate. ...
- Commodities. ...
- Cash and Cash Equivalents. ...
- Derivatives. ...
- Alternative Investments.
The main asset classes include (1) equities (2) debt (3) commodities (gold &precious metals, agricultural products, energy, etc.) (4) cash (5) currency (6) real estate and (7) alternatives. Each asset class has its unique traits, and each offers its own blend of reward and risk.
What are the four major asset classes? ›
Investing in several different asset classes ensures a certain amount of diversity in investment selections. Diversification reduces risk and increases your probability of making a positive return. The main asset classes are equities, fixed income, cash or marketable securities, and commodities.
What is the riskiest asset class? ›
Why Equities Are the Riskiest Asset Class. Equities are generally considered the riskiest class of assets.
What is the safest asset to own? ›
Cash and on-demand cash deposits are the epitome of safety in the asset world. There's virtually no risk of loss (unless it is lost or stolen), making it a very reliable asset. However, its safety comes at a cost: it generally yields minimal returns, especially when inflation runs high, reducing its purchasing power.
What asset gives the highest return? ›
One of the best ways to create wealth for your long-term goals is to invest in equities. There are many examples of stocks that have multiplied investors' wealth over time. For example, the Indian non-banking financial company Bajaj Finance has delivered an annualized return of over 44.1% in the last 15 years.
What are the 4 types of assets? ›
Assets can be broadly categorized into current (or short-term) assets, fixed assets, financial investments, and intangible assets.
What are Class 7 assets? ›
Class IV: Stock in Trade (Inventory) Class V: Other Tangible Property, including Furniture, Fixtures, Vehicles, etc. Class VI: Intangibles (Including Covenant Not to Compete) Class VII: Goodwill of a Going Concern.
What is the largest asset class in the world? ›
Real estate is the world's biggest asset class, with a projected value of $613.60 trillion in 2023.
Hedge funds, private equity and private credit are three key asset classes in the alternatives universe. They provide portfolio diversification, help tap potential for growth and enable financing opportunities for investors and businesses.
Which asset class is best to invest in? ›
The investment risk ladder identifies asset classes based on their relative riskiness, with cash being the most stable and alternative investments often being the most volatile. Sticking with index funds or exchange-traded funds (ETFs) that mirror the market is often the best path for a new investor.
Is real estate an asset class? ›
From stocks to bonds, private equity and structured products, real estate is an asset class that investors invest in to generate returns. Sometimes referred to as real estate asset classes, property types distinguish between intended uses among commercial properties.
What are the five major assets? ›
Asset classes are groups of similar investments. The five main asset classes are cash and cash equivalents, fixed-income securities, stocks and equities, funds, and alt investments.
What are class 5 assets? ›
Class V: Other Tangible Property, including Furniture, Fixtures, Vehicles, etc. Allocation: Normally valued at current market value, often “replacement value.” Note that the buyer may have to pay sales tax on the amount of allocation to this class of assets.
What are 5 assets? ›
Examples of Assets
- Cash and cash equivalents.
- Accounts receivable (AR)
- Marketable securities.
- Trademarks.
- Patents.
- Product designs.
- Distribution rights.
- Buildings.
When we speak about assets in accounting, we're generally referring to six different categories: current assets, fixed assets, tangible assets, intangible assets, operating assets, and non-operating assets. Your assets can belong to multiple categories.
What are the main asset classes in real estate? ›
Real estate is considered a good asset class and investment. The main classes of real estate are class A, class B, and class C. Real estate is split into three property types known as: residential, commercial, and land. One of the best real estate property types to invest in is residential property.
