An investment is a type of incentive generation achieved by dedicating funds towards an asset with an aim to derive better profitability over a desired period of time. An asset is a commodity which can be a physical, moving, digital, operating or intangible. By diverting funds towards acquiring any of the desired assets and selling the same after a certain time period to generate profits as a result of value appreciation, high demand, interest acquiring or maturity defines a successful investment.
Definition of asset classes
An individual or an enterprise can have multiple investments. An asset class groups together investments which exhibit similar characteristics and have to suffice the same regulatory compliances. Asset classes are thus entities with a similar behaviour in a market.
Asset classes form to be the foundation of investment portfolio diversification. Easily understood to be the various flavours of an investment market that you can choose from, asset classes include equities, cash, fixed income, cash equivalents, real assets and alternatives.
Significance of asset classes for investment success
By grouping similar investments together, it becomes possible to achieve a streamlined approach to planning, management and tracking. The comparable financial securities when grouped in a class enable better control over the market dynamics, precise forecasting. Swift reaction and thus better profitability opportunities.
Rani Jarkas Cedrus Investments help investors diversify their portfolios by including a variety of assets from different classes. Enabling diverse investment selections, you can achieve portfolio stability and enhanced risk mitigation. While the prime intent is to generate better profits and higher returns, you can combine similar investment types to ensure better performance tracking, diversification of portfolios and optimized grouping which is critical for market analysis precision.
The common types of asset classes
The most quoted asset classes include equities, fixed income, cash and cash equivalents, real assets and alternatives. Let us understand each in depth as follows -
- Equities (Stocks and Shares)
Equities are portions of companies that have been issued by publicly traded companies for investors to purchase. When you purchase an equity, you give money to fulfil a company’s growth, development and inventory needs. Profits from equities are made when prices of stocks go up or through dividends paid by the company itself.
- Fixed Income (Bonds and Debt)
Fixed income is considered to be less prone to risks when compared to all the other asset classes. Investments in fixed income or bonds pay the investors back in the form of interest. Risk averse investors have their portfolio and income allocated within the fixed income asset class.
- Cash and Cash Equivalent
Money market funds such as cash or cash equivalent asset classes pose greater advantages because of their liquidity. Better liquidity means greater access and cash forms to be the best short-term, redly accessible and low risk asset class.
- Real Assets (Inflation Protection)
Comprising of assets such as real estate, infrastructure, precious metals, commodities, collectibles and other physical entities, real assets make for good investment because they offer protection against inflation. The tangible nature of these assets helps add diversity to portfolio and these tend to be illiquid investment and work better over long term-periods.
- Alternatives
Investment assets such as hedge funds, private equity or venture capital make up the alternate asset class. Investing in alternatives are generally better suited for long term horizons.
Rani Jarkas Hong Kong firm offers assured and dedicated support in helping optimize tour investment strategies. The financial services executive Rani Jarkas offers state of the art guidance in helping achieve optimum portfolio enhancement by allocating the right choice of asset classes.