When it comes to investing, it is important for you to be familiar with the various investment asset classes. When you understand the pros and cons of each asset class, you would be able to make more informed investment decisions that suit your wealth management goals. We shall briefly discuss some of the common asset classes.
A share represents part ownership in a publicly listed company. The share price growth and dividends income are highly dependent on the company’s performance. The pros of share investment include liquidity and accessibility. While shares can yield high returns, share prices can be volatile and subjected to short-term market conditions.
These investments include debentures, government and corporate bonds. The return is generally in the form of regular interest payments over the life of the investment with the capital amount repaid when the investment matures. Although they usually offer lower potential returns, they have potentially lower risk than shares. The attractiveness of the return depends on the interest rate movements.
Cash include bank accounts, bank deposits and similar securities which have a short investment time horizon. They provide stable and low-risk income in the form of regular interest payments. They are highly liquid and have low capital risk. However, they have one of the lowest potential returns of all asset classes, particularly in a low interest rate environment.
This asset class includes direct investment in physical property as well as investments in listed real estate investment trusts (REITs) and other property securities. The value of property can increase substantially over the medium-to-long term, generating higher returns than cash or fixed interest. This illiquid investment usually involved high capital outlay and on-going costs.
Whatever your wealth management goals are, it is important not to put all your eggs into one basket.