Did you know that an estimated 58 percent of people in the United States own stocks on the stock market? One of the biggest keys to growing your wealth and protecting yourself against large economic changes is diversified investing. Knowing the different asset classes and the things that make them up will put you on the right path toward having a diverse investment portfolio.
Many people opt to start with investing in stocks or bonds, but there are many other options out there when you start diving into the different types of investments. Investing in valuable commodities and real estate will set you up for a successful and comfortable life.
The good news is that you’re in the perfect place to learn all about the group of investments that you should make for your portfolio. Keep reading to learn more!
What Are Asset Classes?
Asset classes are different groups of assets that are similar in how they work. The government classifies them together with different laws and regulations governing their trading, and these classifications are determined by how the assets perform in their given market.
It’s important to remember that each asset class has its own level of risk and return involved. The best investors choose to invest in a group of investments spread across a number of industries to hedge their wealth against an economic downturn. It’s brilliant because the performance of one class of assets won’t impact that of another.
Types of Asset Classes
If you’ve got some extra cash that you’re looking to invest then you need to look at your options for diversified investing. The five common assets that people attempt to add to their investment portfolios are equity class assets, fixed-income security assets, cash assets, marketable commodity assets, and real estate assets.
Here’s a closer look at each asset and the reasons you should add them to your investment portfolio.
1. Equity Assets
Equity assets are another term used for stocks. Stocks are your chance to own part of a publicly traded business or corporation. You’ll need to become active in the stock market if you plan on adding equity assets to your investment portfolio.
The stock market is one of the oldest and most popular forms of investing in the United States. You’ll get a return on your investment into stocks through a dividend issued by the company that you’ve invested in. Most dividends get released on a quarterly basis.
The single biggest factor that determines how large your dividend will be is the revenue produced by the company. Your dividend could come in the form of cash or it could result in an increase in shares of their stock. It’s also possible to earn additional money by selling shares of the stocks that you own.
2. Fixed-Income Security Assets
Fixed-income security assets are commonly referred to as bonds, and these assets often involve lending money to the government with a set interest rate in place. You’ll have some flexibility when it comes to receiving your money with bonds since you can generate wealth from the interest you collect or from having the bond reach maturity.
Investing in bonds is a bit tricky since there are outside factors that come into play. The two factors that have a large impact on the value of your bonds are the current interest rates and the levels of inflation.
Local governments look at bonds as an effective way to raise the funds for infrastructure and building improvements. They’re a great investment if you want to put your money in something with steady returns and low risk.
3. Cash Assets
Cash assets are arguably the most common asset class in the United States. Almost everyone in America owns cash in some form, whether it is in a bank account or in a wallet or purse. The reason seasoned investors love having cash in their investment portfolio is the liquidity that it provides compared to stocks and bonds.
Having cash on hand is great because you gain the flexibility to reassess your investments and change course if needed. You can also get cash assets through things like treasury bills and short-term government bonds. It’s a wise move to consider adding these to your investment portfolio.
4. Marketable Commodity Assets
Marketable commodities are great because they’re assets that continue holding their value over the course of time. You can check these silver bars, for example. Silver and other precious metals like gold and platinum are safe investments because you’re putting money into something that has inherent value.
Precious metals have held value across numerous civilizations going back thousands of years, and that doesn’t look to change any time soon. Marketable commodity assets are a wonderful choice because they hold their value no matter what happens to the economy. You can hedge your wealth with precious metals even if the value of the U.S. dollar plummets.
5. Real Estate Assets
Investing in the real estate asset class involves purchasing land as well as homes or buildings. These investments often require more money upfront in order to get started but they can provide some serious payouts. It’s an effective way of growing your wealth and using your equity to continue acquiring more properties.
Some investors turn to flip homes and other buildings as a way to make a living and build their wealth. Others choose to purchase commercial buildings or multi-family units with the intention of renting them out to customers or tenants. Each option is a great way to generate a large passive income that you can put toward the mortgage or save for future investments.
Start Investing in Asset Classes Today
Investing in stocks and bonds is great, but your investment portfolio needs to become diverse if you want to watch your money pile up. It’s a wise move to explore different asset classes like real estate and marketable commodities in order to grow your wealth and protect yourself against a sinking economy. Diversified investing is the key to managing and growing your wealth over time.
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