Definition: An asset class typically has a set of characteristics or attributes that can be characterized in terms of its overall economic value. This overall economic value can be represented through prices paid or yields received on the asset as an investment, loan, or description in terms of revenue or profits generated. Asset classes may include stocks, currencies, real estate, coordination rights (such as a license to circulate a commodity), rights to harvest natural resources, and intellectual property rights
An asset class is the group of assets for which there is a high chance of achieving income and earning capital appreciation in the future. An asset class is a subset of investments whose prices are generally expected to be bid up (and sometimes fall) over time. When assets in a particular asset class get hefty prices, it implies good risk involved, and buyers are willing to pay a premium for that exposure. The asset classes include stocks, bonds, real estate investments, alternative investments, and cash. They also include stocks purchased using options, derivatives (such as financial securities), and other potentially risky financial instruments called pre-IPO securities.
The idea behind asset classes is to break asset allocation down into manageable groups of similar assets. Like classes of stocks, asset classes can be bought and sold on an exchange like stocks, and their prices are affected by market forces. In addition, like traditional stocks, some assets in an asset class may be more liquid than others.
Every asset class has investment opportunities and risks, so it’s important to understand what’s appropriate for your situation. There are basically three asset classes: equities, fixed income, and cash equivalents. Equities are the largest of the three because they’re used for all kinds of investments, including buying stocks. Fixed-income assets include bonds and money market instruments like CDs and T-bills. Finally, cash equivalents are ETFs and mutual funds that are usually denoted as equity or bonds.
The cryptocurrency asset class has seen tremendous growth, especially in the last 12 months, as more investors have realized the potential for non-fungible digital assets. The tangible assets include things like property, inventory, equipment, and inventory equivalents. The intangible assets include intellectual property rights, know-how, and other intangible assets developed through direct or indirect sales. The asset class that generates the most income is the non-resident income propertyclass which can include income sources such as rental properties and interest receivables from banks or stocks.
Asset class helps investors, when selecting a financial product, to focus on an investment’s creditworthiness and business risks. Financial advisors focus on these characteristics in addition to a company’s overall profitability and outstanding debt load as a way to help select the best asset class for you based on your risk tolerance and investment needs. Most financial advisors encourage their clients to buy or sell a specific asset class depending on their overall goals. Every financial advisor has criteria for deciding which asset classes are worth targeting and how much they are willing to invest in you.
Assets have become increasingly popular due to their perceived safety, ability to track portfolios over time, valuations, and ability to generate tax results. Asset classes do this by providing diversification within a single stock or commodity, reducing the overall volatility found in an over- diversified portfolio.