Looking for an overview of traditional asset classes?

Here we highlight the main traditional asset classes and explore their principal characteristics. While these are generally viewed as the traditional asset classes, further groupings or sub-asset classes are often applied. For example, within the asset class of Equity, additional asset classes could be Domestic Equities, Global Equities or Emerging Market Equities (to name a few).

Cash investments are considered the most secure and liquid investments, however, provide lower returns. Securities in this asset class include short-term and medium-term term deposits, bank bills, treasury notes and commercial paper. While these are only usually traded by institutions, they are often in the portfolio of cash management funds accessible to retail investors.

Fixed interest investments are used by investors aiming to generate a regular stream of income over an agreed period. The most well-known fixed interest investments are bonds which are issued by Governments or large corporations. Alternative fixed interest investments have emerged in recent years including non-bank corporate loans.

This asset class is considered to be lower risk than equities with returns considered to be higher than cash investments. Those returns are broadly driven by current and expected interest rates.

The most well-known investment in this asset class is ordinary shares, often referred to as equities or stocks. Shares are bought or sold on an exchange, such as the Australian Securities Exchange (ASX). When you buy shares, you are purchasing equity in the company – that is becoming a part-owner. By owning equity in a business your investment then becomes exposed to the profits or losses of the company.

Traditionally, shares have delivered higher long-term investment returns, however the risk level is higher and short-term volatility can impact companies and markets. By investing in shares, investors aim to generate wealth in the form of dividend income and/or capital growth on the value of the shares.

To most investors, property needs no introduction. However, aside from directly investing in property, there are many additional ways investors can gain exposure to the underlying returns on property. These include Real Estate Investment Trusts (REITs) and Unlisted Property Trusts.

Property is considered to have lower returns than shares but less risk and less volatility. Investors aim to generate wealth through rental yield and capital growth.