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
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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.