A Look at the Different Asset Classes and the Investment Risks they Pose?

Asset class are various investment options, including financial securities, real estate and gold. They are a group of assets which behave in different ways in the market place. Understanding asset class is very essential while diversifying your portfolio. As investment in the same asset class is expected to yield same returns and same risks. Therefore, it is usually advised to diversify your portfolio by investing in different asset class with different risk appetite.

1) Fixed Income

Fixed income or interest yielding securities usually means bonds or similar products which generate regular income. Bonds are issued by company or government to raise money from the public who in turn pay interest called as coupon on principle and return the amount at future specified date. Click to know more

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Risk involved: Risk involved is less when compared to other asset class as bonds are considered safe instruments. However, there can be a chance of default risk.

2. Cash

In simple words cash is nothing but floating amount held in your savings account for near use. This option is good if you are looking for instant money or in near future.

Risk involved: Risk here is the amount you invested is unlikely to generate any income.

3. Real Estate

Investment in property is way old technique of generating more income through rent and lease. In a hope that value of property increases with time, investors look for appreciation in property prices and at the same time rent, until the property is sold. Land, Shopping malls, warehouse are other types of real estate investment.

Risk involved: The duration of the process is long as buying and selling takes longer time and generation of income is not quick. However, value of property may fluctuate over time.

4) Equities

Equities are issued by company to raise money and in turn they distribute profit. Investors buy shares which are traded on stock market. They are considered one of the best long term investment plan.

However, in short term returns can be volatile.

Risk involved: The value of shares are dependent on number of factors including economic factors. Asset allocation into equities should be done considering individual risk appetite.

Conclusion

Each asset class has different levels of risk and returns. Depending on your penchant for risk, tenure and your own age profile and other details, you might want to consider appropriate allocation to each asset class.