Syndicate
Kinds of Assets
Asset allocation has to do with identifying the right kinds of investments from the major asset classes in order to put together an investment portfolio. The following are some of the assets classes:
Stocks- Companies sell shares of their stock in order to increase funds for their operations. Stocks are also known as equities given that they represent an ownership interest in the company. An investor purchases shares of stock using a brokerage account. There are certain companies that utilize a stock purchase plan to sell shares directly to investors. Another way to buy shares is of stock mutual funds. Mutual funds are passing through investments, and this means that the fund is accountable for passing along most of its income to shareholders.
Bonds- Companies, governments, municipalities and government agencies sell bonds in order to increase their funds. Bonds are very alike lending because the issuer borrows money at a contracted interest rate and time and pays back the bonds when the term of the bond comes to an end. Bonds are also known as fixed-income securities since the coupon rate is regularly fixed. This predictability in cash flows offers more assurance to investors than stock dividends, which are not contracted. You purchase bonds by using a brokerage account or you can buy bond mutual funds. In general, bonds by and large have less risk and lower returns than stocks.
Cash- One other big time asset category is cash. Cash includes cash-equivalent securities such as savings accounts and deposits, Treasury bills, money market accounts and money market mutual funds. Cash investments are the most liquid and least risky of the different asset classes. As a result, cash investments do not have as high returns as stocks or bonds do. Even though most asset allocation decisions are based on the major asset classes, other asset classes exist.
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