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What are asset classes?

Asset classes are groupings of securities or investments determined by the way that they react in different market conditions.

What does that mean to me?

Different Asset Classes are suitable for different investors, depending on their Attitude to risk. When putting together a portfolio, it is important that your advisers pay attention to the asset classes, and the funds within each asset class, to ensure that your portfolio is not biased to a specific theme or style, whilst still maximising the return on your investment within the limitations of your attitude to risk.

What Asset Classes are available to me?

Cash and cash equivalents

Cash and cash equivalents are the most liquid assets that can be held. These include assets such as Bank and Building Society savings accounts, Cash ISAs, National Savings Accounts as well as Short Term Government Bonds, Treasury Bills and Money Market Holdings.

Cash is the lowest risk investment, but it should not be taken to be completely without risk, as interest rates may not keep up with inflation, and there is also the risk that the provider may default on the arrangement.

Fixed Interest

This is a broad class of assets covering a wide range of investments offered by either Governments or Companies.

A fixed interest investment is one where investors effectively lend money to the Government or Company for a set period of time and at an agreed interest rate.

The most common types of fixed interest securities are:

  • Government Bonds, or Gilts, which are often considered to be the least risky investments in this class, and often have lower income levels than Corporate Bonds.
  • Corporate Bonds, which are generally regarded as the more risky option in this calss, but oftem offer greater income levels.

Equities

Simply put, equities are the shares of publicly traded companies. There are many different types of share, with the level of risk higher than that of fixed interest securities.

Equities are generally considered to be longer term investments, and can include individual company shares as well as Equity funds, which diversify their holdings across a range of companies.

Property

In the context of investment portfolios, Property assets are generally regarded as residential or commercial property bought to balance a portfolio or, more commonly, investments in property funds.

Due to property being an illiquid asset, property funds often have a clause that states there may be a delay on encashment of funds, as this can depend on the sale of the underlying property.

Other

Other investment classes are available, including assets such as commodities e.g. Gold, physical assets such as cars and wine or art collections and specialist investment funds.

This information is intended for use as a guide only and should only be acted upon after consultation with an Independent Financial Adviser.