Keystone Financial Blog

Asset Classes
The Different Types of Asset Classes

Taking the time to work out what your financial goals are is a vital part of goal-setting. It helps to not only frame where you want to see yourself in future, but also the path to take to make it a reality.

The accumulation of sufficient wealth to generate income to self-fund your envisioned retirement lifestyle; a financial goal that many of us share in common. However, how each of us works towards achieving that goal, can be vastly different.

For example, the structure (e.g. super and/or non-super), the method (e.g. direct and/or managed funds), and the assets (e.g. cash, fixed interest, property and/or shares) chosen can vary from one person to the next.

Still, in all of these various paths that can be chosen, there is again a commonality that we share. Asset classes. We all invest in either one or more of the different types of asset classes to help achieve our financial goals.

The different types of asset classes

There are four main types of asset classes that can be invested in. Namely, cash, fixed interest, property and shares. Each has its unique characteristics, inclusive of the level of risk and return.

Having an appropriate understanding of these different types of asset classes, and what to expect from each of them, can help with making an informed decision as to which to invest in to help achieve your financial goals.

When it comes to the unique characteristics of each asset class, the details are often not standard across the board. This can be due to the unique characteristics of ‘sub-classes’ within each asset class, as well as the chosen underlying individual investment itself. For example, in terms of fixed interest, and risk and return:

Below is a general overview of the unique characteristics of each asset class.

Defensive assets

Defensive assets include cash and fixed interest.

Broadly speaking, those that invest in defensive assets can generally expect, in contrast to growth assets, a lower degree of volatility over the short-term, but lower returns over the long-term.

 

Unique Characteristics of: Cash

Categorisation

Defensive

Focus

Income

Liquidity

High

Rate of return

Low

Returns

Income (regular interest payments)

Risk level

Very low

Time horizon

No recommended minimum

Examples

Transaction accounts, savings accounts, and cash management trusts

 

Please read our learning module section, ‘Cash’, for more information on this type of asset class.

 

Unique Characteristics of: Fixed Interest

Categorisation

Defensive

Focus

Income

Liquidity

Relatively high

Rate of return

Moderate

Returns

Income (interest payments for an agreed period) and potential capital growth (or loss)

Risk level

Low to moderate

Time horizon

Short to medium-term

Examples

Term deposits, government bonds, corporate bonds, and debentures

 

Please read our learning module section, ‘Fixed Interest’, for more information on this type of asset class.

Growth assets

Growth assets include property and shares.

Broadly speaking, those that invest in growth assets can generally expect, in contrast to defensive assets, a higher degree of volatility over the short-term, but potentially higher returns over the long-term.

 

Unique Characteristics of: Property

Categorisation

Growth

Focus

Income and capital growth

Liquidity

Low

Rate of return

Moderate to high

Returns

Income (rent) and capital growth (or loss)

Risk level

High

Time horizon

Long-term

Examples

Residential property, commercial property, and industrial property

 

Please read our learning module section, ‘Property’, for more information on this type of asset class.

 

Unique Characteristics of: Shares

Categorisation

Growth

Focus

Income and capital growth

Liquidity

Relatively high

Rate of return

High

Returns

Income (dividends) and capital growth (or loss).

Risk level

Very high

Time horizon

Long-term

Examples

Australian shares and international shares

 

Please read our learning module section, ‘Shares’, for more information on this type of asset class.

Moving forward

In broad terms, when it comes to achieving your financial goals:

  • If you have a short-term time horizon, and preserving your capital is of high importance – defensive asset classes, such as cash and fixed interest, may be a relevant consideration.
  • If you have a long-term time horizon, you do not need immediate or significant income, you are comfortable with volatile investment values, and you want to grow your assets – growth asset classes, such as property and shares, may be a relevant consideration.

ADV_Banner_468x60_FindMe

Whilst we have provided an overview of several of the unique characteristics of each asset class, many other investment-related considerations need to be taken into account prior to deciding to invest.

As such, after reading this article, you may also find the following of interest:

If you have any questions regarding this article, please do not hesitate to contact us.


🎙We would love to hear your thoughts on this article, share your comments below!

Share us your email and we'll send you more insights and reports

side1-1

side2-1