Asset Class
A group of investments with similar behavior, risk, and regulatory profiles (e.g., stocks, bonds, cash).
What You Need to Know
An asset class is a broad category of investments that respond similarly to market conditions. Each class has its own expected return, volatility, and role inside a portfolio.
Core Asset Classes:
- Stocks (Equities): Highest growth potential but also highest volatility
- Bonds (Fixed Income): Provide income and stability; prices move opposite interest rates
- Cash & Cash Equivalents: Very safe, low return (savings accounts, money markets, T‑bills)
- Real Assets: Real estate, commodities, infrastructure that hedge inflation
Why Asset Classes Matter:
- Drive 90%+ of portfolio risk/return
- Guide diversification decisions
- Help match investments to time horizon
- Make rebalancing rules clearer (sell overweight classes, buy underweight)
Example: A 60/40 portfolio holds 60% stocks and 40% bonds. If stocks rally, the asset class weighting shifts—triggering a rebalance to restore balance.
Sources & References
This information is sourced from authoritative government and academic institutions:
- investor.gov
https://www.investor.gov/introduction-investing/investing-basics/asset-allocation
Related Calculators & Tools
Put your knowledge into action with these interactive tools:
Asset Allocation Planner Calculator - Free Online
Plan your asset allocation with our free tool. Create a personalized roadmap for success.
Asset Class Comparison Tool
Calculate your asset class comparison with our free online tool. Get accurate results instantly. No signup required.
Related Terms in Investment Analysis
Appreciation
The increase in an asset's value over time, whether it's real estate, stocks, or other investments.
Bond
A fixed-income investment where you loan money to a government or corporation in exchange for regular interest payments.
Bond Yield
The return an investor earns on a bond, expressed as a percentage, which can be calculated as current yield (annual interest ÷ current price) or yield to maturity (total return if held until maturity).
Capital Gains Tax
Tax on profits from selling investments like stocks, bonds, or real estate.
Capital Loss
A loss realized when you sell an investment for less than you paid for it, which can offset capital gains for tax purposes.
Correlation
A value between -1 and +1 that shows how two investments move together—lower correlation improves diversification.