Asset Classes

(The weekly series - Pocket Money - where I explain financial basics in fewer than 200 words. Feel free to make suggestions!)

An asset is something that you can own that has value (income or sale value).

Investors group these into asset classes which have similar attributes, behave similarly and are subject to similar rules.

The main asset classes are:

• Equities - Shares or owning a small part of a business. They're volatile but you might get a dividend and/or the value may go up.

• Fixed Income - Bonds or lending money to the government or businesses. You get a defined coupon (basically, interest) and the face value of the bond back at a predetermined time.

• Cash or Cash Equivalent - Essentially money in savings accounts (but also some other very safe investments like Premium Bonds).

• Commodities - Basic goods which can be made into other things of value - gold, wheat, oil.

There are other asset classes too, e.g. real estate, antiques or crypto.

There usually isn't much correlation between the classes, but sometimes it's negative. Correlation is a connection between things, so either they have nothing to do with each other or possibly, one asset doing well (e.g. equities) means that another will go down (e.g. fixed income).

Investors use the asset classes for diversification.

Love Eleanor. xxx