Investment assets in financial markets are securities designed to generate profits. They are grouped into classes known as asset classes and can be broken down into stocks, bonds, commodities, and currencies.
Each asset class tends to react differently to the same economic news, thus by combining multiple investment assets into one portfolio, which is a group of held investments, the investor mitigates exposure to risk.
In addition to grouping them through broad financial components, investment assets can be classified based on detailed characteristics, including stocks that trade in a similar industry such as energy.
types of investment assets
There are different types of investment asset classes, but all are used to enhance an investment portfolio. Stocks that trade in the financial markets are included in the stocks group, while bonds are classified as fixed-income investments.
Real estate is a type of hard asset because it is a tangible component, although some real estate trades as a value in an index known as a real estate investment trust in the stock market. Commodities represent a comprehensive class of assets under which you trade various investment assets, including oil, gas, and agricultural products.
By combining unrelated asset classes in a portfolio, an investor diversifies his exposure to the markets. Uncorrelated assets tend not to trade in sync with each other. For example, if stocks fall sharply, commodities do not necessarily follow suit, which may be able to prevent the portfolio from more severe losses.
Different asset classes tend to react differently to the same news or economic development, and by diversifying across multiple asset classes, an investor mitigates risk.
