what is an asset class 
an asset class is a grouping of investments that exhibit similar characteristics and are subject to the same laws and regulations asset classes are thus made up of instruments that often behave similarly to one another in the marketplace examples of common asset classes include equities fixed income commodities and real estate nono flores investopediaunderstanding asset classessimply put an asset class is a grouping of comparable financial securities for example ibm msft and aapl are a grouping of stocks asset classes and asset class categories are often mixed together there is usually very little correlation and sometimes a negative correlation among different asset classes this characteristic is important in the field of investing historically the three main asset classes have been equities stocks fixed income bonds and cash equivalent or money market instruments currently most investment professionals include real estate commodities futures other financial derivatives and even cryptocurrencies in the asset class mix investment assets include both tangible and intangible instruments that investors buy and sell for the purposes of generating additional income on either a short or long term basis financial advisors view investment vehicles as asset class categories that are used for diversification purposes each asset class is expected to reflect different risk and return investment characteristics and perform differently in any given market environment investors interested in maximizing return often do so by reducing portfolio risk through asset class diversification financial advisors will help investors diversify their portfolios by combining assets from different asset classes that have different cash flow streams and varying degrees of risk investing in several different asset classes ensures a certain amount of diversity in investment selections diversification reduces risk and increases your probability of making a positive return the main asset classes are equities fixed income cash or marketable securities and commodities types of asset classesthe most common asset classes are cash and cash equivalents represent actual cash on hand and securities that are similar to cash this type of investment is considered very low risk since there is little to no chance of losing your money that peace of mind means the returns are also lower than other asset classes examples of cash and cash equivalents include cash parked in a savings account as well as u s government treasury bills t bills guaranteed investment certificates gics and money market funds generally the greater the risk of losing money the greater the prospective return fixed income is an investment that pays a fixed income basically you lend money to an entity and in return they pay you a fixed amount until the maturity date which is the date when the money you initially invested the loan is paid back to you government and corporate bonds are the most common types of fixed income products the government or company will pay you interest for the life of the loan with rates varying depending on inflation and the perceived risk that they won t make good on the loan the risk of certain governments defaulting on their bonds is very unlikely so they pay out less conversely some companies risk going bust and need to pay investors more to convince them to part with their money 