A variety of financial investments
To make the multitude of financial investments easier to compare, they can be divided into investment classes (also: asset classes). Similar financial products are grouped together in these classes, making it easier for investors to choose. In order for a product to be an optimal fit for the investor, it should above all correspond to your individual goals.
Once you have found a suitable investment from your asset class, you can easily add further investments from the same group or from another class to your securities account and thus build up a portfolio that is broadly diversified and that meets your personal goals for building up assets. But how do the asset classes actually differ from each other? And how do you choose the right class for your needs from the number of different asset classes?
What are asset classes?
An asset class is defined as a group of financial products in https://online-exness.com/payment-methods/ that can be grouped together based on their similar characteristics. An asset class always contains products that have the same return and risk drivers. As a rule, four properties are to be distinguished here: liquidity, maturity, risk class and fluctuation in value.
Liquidity is the ability of a financial product to be quickly converted into cash. It ranges from very liquid investments to almost illiquid investments. An example of a liquid investment is a savings account or call money. The money invested there is paid out to you within one or two bank working days, so it is practically available at any time. The situation is completely different with money invested in a closed-end fund. If, for example, you have paid a fixed sum into a closed-end ship fund or aircraft fund, this money is only available after the expiry of the agreed term, it is thus invested illiquid.
This period of validity ranges from short-term to long-term investments. Short-term investments last from several months to about one year. Medium-term investments run for up to five years, which includes many time deposits, for example. Long-term investment products may well have a duration of ten to 15 years before the money is paid out. This again includes many closed-end funds.
The risk class: a very important criterion for investors
A distinction is made between low-risk investments, where there is no risk of fluctuation in value or loss, and very risky and speculative investments, which in the worst case can even lead to a total loss. A safe investment is often accompanied by a low return, while speculative financial products promise a very attractive return. As an investor, you are regularly required to maintain a balance between risk and return when selecting your financial products.
Fluctuations in value also represent a characteristic. Some financial investments are very stable, so that the value of the money deposited does not change. In a call money account, for example, the value of the money invested remains unchanged. Volatile investments are mainly shares, but also funds. The value of a share may change overnight, it may rise, but it may also fall. In the long run, volatile investments often yield a better return than stable investments.