Basic Asset Classes
"The key is to slow down and relax. This is your money.
Take the time to improve your understanding of some of the
basic concepts and then focus on the historical risk-return
numbers."
- Allyson Lewis, author of
The Million Dollar Car and $250,000 Pizza
Say your family goes to a local amusement park once a year.
Chances are good that there are a few rides someone will sit
out on. Maybe you don't like the big roller coasters. Maybe
your teenage son has outgrown the merry-go-round.
By the same token, each investment has a level of risk associated
with it. Higher risk investments are like a roller coaster--they
require a stronger stomach, but the thrill is much greater.
Lower risk investments, on the other hand, may just be too
sedate for some investors.
Asset Allocation Choices
There are 3 main investment categories, also known as asset
classes:
- Stocks: represent ownership in a company and generally
offer the best growth opportunities over the long term,
as well as the highest risk.
- Bonds: represent your loan to a government or
corporation and generally offer steady, fixed income and
medium risk.
- Cash: represented by short-term instruments, cash
provides more protection for your investment but less opportunity
for growth as the lowest risk asset class.
Individual Investment Choices
The following roster of investment choices covers the spectrum
from the most conservative to the more high-risk--yet potentially
higher return--investments.
Savings Preservation/Low Risk:
Cash/money market accounts
Short-term fixed accounts
Certificates of deposit (CDs)
Treasury bills Income Potential/Medium Risk:
Fixed account options
Government bonds
Corporate bonds
High-yield bonds High Growth Potential/High Risk:
Growth-income securities
Large capitalization (large cap) stocks
Mid cap stocks
Small cap stocks
Value stocks
International stocks
Utility stocks
Real estate investment trusts
Capital appreciation stocks
Emerging markets stocks and bonds
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Basic
Asset Classes
