What Is an Asset?
An asset is a product you purchase that can grow in value or generate future income. When your friend says “I’m investing”, this means that he or she has bought assets.
Asset types, also known as asset classes, are groups of investment assets that exhibit similar characteristics (such as the level of risk and rate of return) and perform similarly in the market. Some asset characteristics may overlap, meaning no asset class can be a perfect substitute for another.
Three Common Asset Types
- Stock (= equities): buying the asset means you are part owner of the issuing corporation
- Bond (= fixed-income): buying the asset means you are giving a loan to the issuing institution or corporation
- Cash Equivalent (= money market instruments): short-term investing assets that are low-risk and very easily converted into cash
Understanding pros & cons of asset types matters because they are the major components of financial products, and essentially your portfolio. Common financial products, for example, mutual funds, ETFs, are all made up from various assets including stocks, bonds and cash equivalents.
More Assets Types
- Real estate: assets in the form of property, such as land and buildings
- Commodity: A raw material or primary agricultural product that can be bought and sold. Oil and gold is most often mentioned as commodities. They are usually traded through future contracts in commodities markets.
- Art and collectibles: Van Gogh paintings and prestigious wines can all be considered investment assets if they are bought with the intention of reselling them for profit.