The 3 main asset classes are stocks or equities, bonds or fixed income, and money markets or cash equivalents. These are terms that I have seen over and over again in my research on investing in the stock market and at first was totally confused by them. What are they and whats the difference?
How does each one perform differently?
Each one performs differently depending on what the market is doing and how it is changing.
Equities or stocks have historically outperformed the other classes, however they tend to be more volatile and bring more risk.
Fixed income or bonds are investments that are set up to pay out at a set interest rate over a set period of time. They are safe but the potential return is less than that of equities.
Money markets or cash equivalents are the lowest returning of the 3 asset classes but the safest. They provide a minimum return on investment.
Diversifying across these three main classes can help to lower your risk and improve chances of steady gains. Mixing very safe with a little bit of risky has proved to be a better method than betting it all on black! I guess it depends on what kind of a gambler you are.
Are you diversifying your investments across asset classes?
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Send me a message. Did you love the post or hate it? What would you like the next topic to be? Follow me on Twitter @financegirl
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