Which are the different asset classes?

[Buyingahome]

As I am educating myself more about investments, I continued to hear a term "asset classes" and I was hoping someone could help me break that down. I know this likely includes Stocks/Bonds/Cash (maybe something related to international markets). But I think it is not this simple. Also are there ways to find out how all these assets fair each year and if so how I can check them? Thank you for helping with my education.

[kork13]

It depends on how narrowly you choose to slice the asset classes. But in general, I think of these ones as a baseline:
- Stocks (domestic & international)
- Bonds (federal, municipal, corporate, and international equivalents to those)
- Cash (in bank accounts, CDs, physical currency, and foreign currencies)
- Other Fixed Income (ownership interests in debt obligations, such as tax liens, mortgages, etc.)
- Real Estate (actual ownership of homes, offices, land, and also REITs)
- Commodities (base minerals, metals, and materials, like gold, silver, nickel, copper, oil, cotton, corn, and many more)
- Real Assets (things you can hold that are worth money, like art, jewelry, & other collectibles)
- Business (ownership interests in a business) **Not sure what to call this one, if "business" is not the proper term for it**

[Buyingahome]

thanks kork

are stocks broken down into smaller segments such as growth or value or small or mid cap, etc? or are the total amount of stocks all that people care about when talking about asset allocation?

That was a large list and i am sure you are simplifying things. would it be argued that an ideal portfolio has some percentage of each of those items you listed or is that near impossible?

[kork13]

Yes, I did generalize alot of that, especially the stocks... As I said, it depends on how you slice it. You can consider large-/mid-/small-cap stocks, growth vs. value stocks, individual sectors of the stock market (telecom, utility, tech, consumer goods, etc.), and so on. Additionally, all of those have parallels with international (developed market) stocks, not to mention emerging markets.

While in theory it is possible to capture most of those very different asset classes, it can quickly become impractical. Also consider that it's not necessarily essential to have a holding in every possible asset class known to man. Many people simply go quite successfully with stocks, bonds, cash, and real estate.

Mutual funds are designed to hold ownership interests in a wide variety of assets for you... all you need to do is buy the fund, and you have instant diversification across whatever particular segment the fund covers. So that is a good option. You can get mutual funds covering broad segments, such as a Total Stock Market fund (VTSMX) or Total Bond Market fund (VBMFX). There are also very narrowly-focused funds, such as one holding only stocks from one single sector (like an energy market mutual fund (VGENX). For someone just starting out (or even for the experienced investor), it's often a better idea to just go with a simple portfolio of broad market index funds. I saw your new thread asking about asset allocation & diversification -- you'll get good advice there. Just take the time to read, research, & learn. Investing doesn't need to be cosmic.

[feh]

As I am educating myself more about investments, I continued to hear a term "asset classes" and I was hoping someone could help me break that down. I know this likely includes Stocks/Bonds/Cash (maybe something related to international markets). But I think it is not this simple. Also are there ways to find out how all these assets fair each year and if so how I can check them? Thank you for helping with my education.

I suggest you go back to the Bogleheads wiki that I pointed you at in another thread. Much easier to get such info from sources that have been edited and modified for clarity over the years than to ask individuals for their opinions.

Everything you need to get started is there. As you delve deeper, there are recommended books to read.