There are a number of different asset classes for investors, but which ones are best for you? If you are considering your options for asset management in Cheshire, our guide offers an overview of different investment opportunities.
What is an asset class?
An asset class is usually defined as a group of investments with similar characteristics, and which are bound by the same legal regulations. These might include shares, fixed income (bonds), real estate, cash or cash equivalents.
While asset classes are often grouped together, crucially there isn’t usually much correlation between them. Investors will look at tangible or intangible instruments that promise a quick return, or those offering a longer-term income generator. There are different potential asset categories in the mix, of which these are the most common:
Equities
Also referred to as stocks or shares, equities are a percentage in a stock market-listed company, whereby you can acquire part of the business.
If the share value increases, there is an opportunity to sell and make a profit, or the company can pay back the enhanced valuation to shareholders as a dividend. The value of that stock can go up or down, but if the company underperforms, its shares will lose value.
Corporate bonds
Also known as gilts or fixed interest securities, corporate bonds are essentially loans that you pay to a company or government. In return, they pay you back with interest, after a fixed period of time.
They are considered to be less volatile in a portfolio than stocks, which are more susceptible to fluctuation. However, their value can decrease if interest rates rise, as newly issued bonds may offer more attractive returns to investors.
ETFs
You can also purchase collections of assets known as exchange-traded funds (ETFs) at a stock exchange. These hold various asset classes, ranging from company equities and commodities to bonds and currencies, under one fluctuating market value, while offering the benefits of diversification.
Elsewhere, some investors opt to trade on commodity markets instead, with prices driven by supply and demand, while crypto digital currencies, which operate independently of state banks, have become increasingly popular too.
The key here with all categories is diversification, ensuring risk is best managed by spreading investments across different asset types, sectors or countries.
