Asset Classes Defined
by Charles Rotblut, CFA
Combining various asset classes in a portfolio to achieve a higher return while lowering risk is a good strategy, but only if you know what you are investing in. Each asset class has unique characteristics that influence its price volatility and level of risk. In this month’s column, I define the major asset classes and explain what factors influence their returns and what risks they carry.
Though each asset class is not without risk, when grouped together in a portfolio, their individual characteristics offset overall investment risk and enhance long-term returns.
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Stocks
Stocks are ownership interests in a company. They are often called equities because shareholders own the net assets of a company, which is also known as “equity.” As partial owners, shareholders have the right to vote on corporate matters and receive dividends.
Stock prices are primarily influenced by earnings, and the market’s expectation of what future earnings will be. A variety of other factors can also affect a stock’s price, including valuation, the economic environment, industry conditions, sentiment, news headlines, and changes in the number of shares outstanding.
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Discussion
Where do you classify TIPs and would you also include infrastructure as a separate asset class?
posted 12 months ago by Nancy from Maryland
Nancy, TIPS are a type of bonds and should be classified as fixed-income. Assuming you are investing in infrastructure stocks, it would be grouped under the stocks asset class. -Charles Rotblut, CFA
posted 12 months ago by Charles from Illinois
