Home Finance Investing Basics – What Are the Different Types of Assets?

Investing Basics – What Are the Different Types of Assets?

by gbaf

For many investors, their best bet in the stock market is to create a diversified portfolio that includes as many of the asset categories as possible. In a broader sense, the asset categories in question are bonds, stocks and money (or currency equivalents such as cash, certificates of deposits or savings accounts). All of these asset categories bring something of worth to your investment portfolio. However, stocks expose you to the biggest risk and the highest potential for eventual failure. Bond funds, on the other hand, are less risky but do not provide you with as much potential for appreciation. It is ultimately your investment decisions that will determine whether you make money or lose it.

The most important asset class to consider when planning your portfolio is the stock market. Examples of this asset class include equities, derivatives, mutual funds and bonds. All of these investments have risks associated with them, although some of them offer higher potential for gain than others. For example, equities carry less risk than bonds, but both carry greater potential for appreciation if you choose right.

Another asset class to consider is the intangible asset class. Examples of this include property, accounts receivable and prepaid expenses. All intangible assets, except cash, are depreciated over time and may be measured against the cost of borrowing the asset or its net worth. There are many strategies to minimize the tax impact of this asset class. Some of the options you can use include the transfer of assets within the account, utilizing the account to buy back stock that you no longer want and using the tax laws to shelter capital gains from double taxation.

The next category is the long-term investment category which includes bonds, mutual funds, stocks and the real estate market. A major benefit of investing in the real estate market is that there are thousands of properties that you can purchase and hold for the long term. One of the examples of this asset is your own home. In most cases, holding on to a home will allow you to realize the future economic benefits of that asset.

The third category is the value of cash flows. This type of asset allocation strategy deals with short-term fluctuations in the price of large-cap stocks. As an example, if large-cap stocks are expected to do well in a certain period of time, you can buy shares of them. Once their price has dropped by the amount you invested, you will realize a profit because the asset you purchased has increased in value.

The fourth type of asset allocation strategy is known as the income asset allocation strategy. With this type of strategy, you build your portfolio with investments that are concentrated in specific types of bonds, stocks and other financial instruments. One good example is the funds that pay interest only. This type of investment allows investors to benefit even if interest rates are lowered. A lot of people choose to use this strategy especially when they don’t want to lose their money in case the prices of the securities and instruments they hold drop.

The fifth strategy is termed the asset allocation approach. In this type of strategy, you have to carefully consider the present price of different assets so that you can determine which ones should be included in your portfolio and which ones should not. It is a very important decision to make because you are putting your entire financial future at risk. However, examples of this asset class include the following: real estate, safe investments like bank deposit boxes, gold bullion and bonds.

Another category is known as the non-traded assets. Examples of this are derivatives, foreign exchange products and mutual funds. These types of assets usually increase in value over time but you won’t earn any dividend for holding them. If you invest in tangible assets, your earnings will be tax-deferred until you eventually sell them or pass them on to your beneficiaries. In general, the best way to ensure that you enjoy the maximum benefits from your assets is through diversification. Diversification refers to making investments in a number of different entities so that you are not dependent on just one type of investment vehicle.

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