What is an Asset Class?

In finance and investment, an asset class is a group of assets or investments that have similar characteristics. Investment vehicles that are similar in nature and are bound by the same laws and regulations are grouped into an asset class. There are three major asset classes, these are;

• Fixed income or bonds
• Equities or stocks
• Money market instruments, cash equivalent.

The investment vehicles in an asset class exhibit similar behaviors when traded in the market and have similar performance.

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How is an Asset Class Used?

An asset class comprises of investment or assets a correlation or similar traits. There are varieties of assets mixed as created by investment professionals but the commonly recognized classes of assets are equities, fixed income, and money market instruments. Usually, asset classes have meant to have diverging returns and risks, this means that two asset classes perform differently when traded in the same market. Asset classes are used by portfolio managers or investment management firms for diversification purposes. By selecting different classes of assets of varying levels of risks and returns, portfolio managers seek to maximize profit and reduce risk. Here are some important points to know about asset class;

• An asset class refers to a grouping of investment vehicles with similar characteristics and similar performance when traded in the market.
• There are three major asset classes, these are equities, fixed income and cash, cash equivalents. Investment managers also have some asset mix class with include financial derivatives, commodities, futures contract and others.
• Different asset classes have varying levels of risk and returns, find managers and financial advisors focus on using asset classes to achieve diversification of a portfolio.

Asset Class and Investing Strategy

There are certain investment strategies used by investors and fund managers where asset classes are considered. Investment strategies use various factors that help them categorize assets that reduce the risk of the investment portfolio and maximize profit. In certain cases, the performance of an investment is linked to the asset class that make up the investment. While some investors are particular about the investment performance, others are concerned about the asset class, these two, however, remain inseparable to a certain degree.

Asset Class Types

There are three types of asset class, that are;

• Equities or stocks
• Fixed-income securities or bonds
• Cash, cash equivalents and other marketable Securities

These asset classes are the most popular costs. Aside from these classes of asset, there are other mix classes of assets known as alternative assets.