Asset Class

Loading the player...

What is an 'Asset Class'

An asset class is a group of securities that exhibits similar characteristics, behaves similarly in the marketplace and is subject to the same laws and regulations. The three main asset classes are equities, or stocks; fixed income, or bonds; and cash equivalents, or money market instruments. Some investment professionals add real estate and commodities, and possibly other types of investments, to the asset class mix.

BREAKING DOWN 'Asset Class'

Asset classes and asset class categories are often mixed together. Financial advisors view investment vehicles as asset class categories that are used for diversification purposes. Each asset class is expected to reflect different risk and return investment characteristics, and performs differently in any given market environment. Investors interested in maximizing return often do so by reducing portfolio risk through asset class diversification.

Financial advisors focus on asset class as a way to help investors diversify their portfolio. Different asset classes have different cash flows streams and varying degrees of risk. 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 return.

Asset Class and Investing Strategy

Investors looking for alpha employ investment strategies focused on achieving alpha returns. Investment strategies can be tied to growth, value, income or a variety of other factors that help to identify and categorize investment options according to a specific set of criteria. Some analysts link criteria to performance and/or valuation metrics such as earnings-per-share growth (EPS) or the price-to-earnings (P/E) ratio. Other analysts are less concerned with performance and more concerned with the asset type or class. An investment in a particular asset class is an investment in an asset that exhibits a certain set of characteristics. As a result, investments in the same asset class tend to have similar cash flows.

Asset Class Types

Equities, or stocks; bonds, or fixed-income securities; cash, or marketable securities; and commodities are the most liquid asset classes and therefore the most quoted asset classes. There are also alternative asset classes such as real estate, artwork, stamps and other tradable collectibles. Some analysts also refer to an investment in hedge funds, venture capital, crowdsourcing or even bitcoin as examples of alternative investments. The more alternative the investment, in general, the less liquid. That said, an asset's illiquidity does not speak to its return potential; It only means it may take more time to find a buyer to convert the asset to cash.

RELATED TERMS
  1. Intermarket Analysis

    The analysis of more than one related asset class or financial ...
  2. Multiple Capital Structure

    The classification of a company's stock and bond offerings into ...
  3. Share Class

    A designation applied to a specified type of security such as ...
  4. Asset Mix

    The classification of all assets within a fund or portfolio. ...
  5. Classified Shares

    The separation of company equity into more than one class of ...
  6. Class Of Shares

    1. Types of listed company stock that are differentiated by the ...
Related Articles
  1. Markets

    What is an Asset Class?

    A group of securities that exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same laws and regulations.
  2. Managing Wealth

    Diversification: It's All About (Asset) Class

    Frustrated stock pickers rejoice - asset class selection is simpler and safer.
  3. Investing

    3 Benefits of Looking at Asset Classes Beyond Your Portfolio

    Discover three of the primary advantages for investors that can be obtained by diversifying their investment portfolio with different asset classes.
  4. Managing Wealth

    2016's Most Promising Asset Classes

    Find out which asset classes are considered to be the most promising for generating portfolio returns and reducing volatility in 2016.
  5. ETFs & Mutual Funds

    Which Fund Share Class is Best for Retirement?

    Mutual funds are a popular investment for retirement. Here's how to choose the best share class when investing in them.
  6. Investing

    What are Class B Shares?

    Class B shares are one classification of common stock issued by corporations.
  7. Investing

    What is the Importance of a Share's Class?

    The meaning of share classes varies, depending on the investment vehicle.
  8. Investing

    Which Income Class Are You?

    This article identifies the various income classes in America. Find out which class you fall under.
  9. ETFs & Mutual Funds

    The ABCs Of Mutual Fund Classes

    Do you understand how the various types of shares differ? We give you the pros and cons of each.
  10. Managing Wealth

    Diversification Beyond Stocks

    If you think holding several stocks means you're diversified, think again - there's much more to be done to reduce portfolio risk.
RELATED FAQS
  1. Which class (class A, B, C) shares should I purchase if my time horizon is long term, ...

  2. Can I transfer Class A shares of one fund into Class A shares of another without ...

  3. Is the upfront cost of Class A mutual fund shares worth it?

    Learn about the differences between mutual fund share classes, and discover under what circumstances the Class A shares make ... Read Answer >>
  4. What is the difference between Class A shares and other common shares of company's ...

    Discover how a company can break down its common stock into multiple classes and how these classes differ from one another ... Read Answer >>
  5. What is the difference between Berkshire Hathaway's Class A and Class B shares?

    Learn why Warren Buffet created Berkshire Hathaway Class B shares and discover the main differences between Class A and Class ... Read Answer >>
  6. How are a mutual fund's C shares different from A and B shares?

    Learn how a class C share differs from a class A or B share in relation to a mutual fund. Read Answer >>
Hot Definitions
  1. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  2. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  3. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  4. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  5. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  6. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
Trading Center