Asset Classes

What is an asset class?

An asset class is a group of securities that have similar financial characteristics. The primary asset classes are: equities, fixed income, money market, guaranteed, and real estate.

Overview of asset classes

The table below provides an overview of each asset class.

Primary Asset Classes
Asset Class
DescriptionHighlights
EquitiesAlso called stocks, equities represent shares of ownership in publicly held companies.
  • Historically have outperformed other investments (keep in mind that past performance does not guarantee future results)
  • Most volatile in the short term
  • Returns and principal will fluctuate so that accumulations, when redeemed, may be worth may be more or less than original cost
Fixed incomeFixed income, or bond investments, generally pay a set rate of interest over a given period, then return the investor’s principal.
  • Set rate of interest
  • More stability than stocks
  • Value fluctuates due to current interest and inflation rates
Money marketMoney market investments are relatively safe, liquid short-term investments; examples include: government issued securities, CDs, banker’s acceptances, euros and commercial paper.
  • Less volatile than stocks and bonds1
  • Lower potential for growth
  • Short-term investment
GuaranteedGuaranteed assets with a fixed rate and backed by the claims-paying ability of the issuing insurer.
  • Preserves your principal
  • Provides at least a specified minimum return
Real estate

Your home or investment property, plus

shares of funds that invest in commercial real estate.

  • Helps protect future purchasing power as property values and rental income run parallel to inflation
  • Values tend to rise and fall more slowly than stock and bond prices. It is important to keep in mind that the real estate sector is subject to various risks, including fluctuation in underlying property values, expenses and income, and potential environmental liabilities.

Most financial experts agree that some of the most effective investment strategies involve diversifying investments across broad asset classes like stocks and bonds, rather than focusing on specific securities that may or may not turn out to be "winners." Diversification is a technique to help reduce risk. However, there is no guarantee that diversification will protect against a loss of income.

Why is asset allocation so important?

The goal of asset allocation is to create a balanced mix of assets that have the potential to improve returns, while meeting your:

  • Tolerance for risk (market volatility) Use our Asset Allocation Calculator to find your risk tolerance
  • Goals and investment objectives  
  • Preferences for certain types of investments within asset classes

Being diversified across asset classes may help reduce volatility. If you include several asset classes in your long-term portfolio, the upswing of one asset class may help offset the downward movement of another as conditions change. But keep in mind that there are inherent risks associated with investing in securities, and diversification doesn’t protect against loss.

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