Asset Classes

Financial Dictionary -> Investing -> Asset Classes

When considering the asset classes appropriate for you, bear in mind how much risk you are willing to take with your investments. Also, it's important to decide how much time you want to keep your investment. This may depend on your age, how many more years you plan to work, when you plan to retire, or any other number of factors.

Most assets fall into these two types of asset classes:
- Income-producing, or Defensive
- High Risk, or Growth

An asset class that produces income is best for the short-term investor as well as for those who favor a secure investment with regular returns on their investment.

A more risky asset class would consist of higher returns on your investment. These are best for the long-term investor who is willing to ride out any dips in growth.

Some investors prefer a good mix of both asset classes. A part of an individual's financial Portfolio may include how he distributes, or allocates, his investments to meet his financial goals.

Some assets that fall into these classes are stocks, bonds, real estate, cash or cash equivalents, loans, Certificate of Deposit, annuities and mutual funds. Each such is taken into consideration before investing. While bonds are mostly viewed as 'safe' investments, stocks, depending on the stock, can fall into either category.

In addition to asset classes, there are other types of investments you may want to consider: precious metals, venture capital, collectables, and others. Allocating your assets should be a top priority when planning your financial future. Diversification, or a mixture of both high-risk and income-producing asset classes, is generally considered the wisest route to take on the road to financial stability. Your best bet is to start with a financial plan that includes a strategy for asset allocation.