Overview of Asset Classes for Investments

Asset Classes are a group of securities that can be invested for the purpose of profits:

• Stocks (Equities)- shares of ownership in a company
• Bonds- lending money to an organization to earn interest
• Real Estate- physical property for leasing
• Commodities- natural resources and precious metals

It is important to understand that each asset is subjected to cycles. Money can flow to one asset and then to another. How money flows is based on various factors: market, economy, government, and war. One should take the time to research and study these variables to invest properly.

The most common and popular choice is stocks (equities). Stocks require minimal amount of starting capital, and could potentially return the greatest. Stocks perform exceptionally well when governments/central banks impose inflationary policies though money printing. However, the risks are very high and prices can go to zero.

Bonds are essentially loans charging interest payment until maturity. Upon maturity the loan is paid back at bond value (par value). The value of the bond changes according to interest rates. If interest rates rises, then the value of the bond declines. This could potentially cause losses, especially if the bond issuer defaults (bankrupt). Ideally, bonds returns the greatest gain when interest rates are high and trends downward before maturity.

Perhaps the most lucrative investment are Real Estates. Limited land and rising population are favorable condition for owning land. There are typically 2 ways to profit from real estate: leasing or selling. A critical mistake often made is using debt to finance the purchase and calling it an Asset. Unless the debt is paid in full, it can not be considered an Asset.

Commodities can range from a wide variety of items such as goods, services, natural resources, and precious metals. These are the least sought investment as the value generally rises during times of currency inflation or fear. Historically, commodities retain their value and do not succumb to default or going to zero in price.