What Asset Class Really Means
If you are an investor in Singapore and you don’t have a notion what asset class really means, then hold on. Asset class is one of the most commonly used terms in the field of investments. Normally, an asset is defined as a sort of value to someone. A vehicle, a house, a lot is an asset. Knowledge, although it is abstract and cannot be touched, is deemed as asset. Thus, an asset class is none other than a group of assets that reveals analogous characteristics, acts similarly in the marketplace and is governed by the same laws and regulations.
But the concept of asset itself depends largely on the perception of the individual to the given asset. This means that if a particular thing (e.g. a vehicle) is an asset to some person, at the same time this could also be a liability to another. In other words, an asset has to do with benefits. If a person gets some benefits or value from owning a vehicle, then it is an asset for him.
A wide assortment of assets is available in Singapore. Assets can be grouped into categories, depending on their characteristics such as assets return and risk profile, the kind of earnings it provide, the amount of initial investment.
Resourceful investors should have a comprehensive idea of the principal asset classes and their characteristics in order to build up a well-structured portfolio and to generate the most out of their investments. The following are the principal asset classes:
Cash is essentially that available money inside your wallet. The money you use to buy everything. Nevertheless, in the investment field, “cash” as an asset is usually defined as investments that can easily be converted in cash within a short period of time, typically within a year. For this reason, cash assets may comprise any money you have in your savings or fixed deposit account.
Bonds are just like loans. If you choose to invest in bonds, you simply “lend” your money to a bond issuer, which can be a government, state or large companies or corporations. In return, you will be awarded with a regular interest all throughout the loan period.
Property investments are not new to almost all people. Investments of these types include physical, brick and mortar assets that are commonly in the form of an apartment or a dwelling, that, unfortunately, may increase or decrease in its value and may generate a regular income known as “rent”.
Property investments may also consist of lots, retail outlets, shopping centres, supermarkets, hotels, company buildings and industrial parks.
Like you probably know, a share or share certificate is a legal document that attests ownership of a defined company. If you have a share in a company, you are called a shareholder, and it only means that you are a part-owner of the company, whether you are employed there or not. You, as a shareholder, can directly benefit from anything the company might generate.
Profits from share investing may come in two ways: you can earn profits in the form of income, known as dividends, or you can earn profits in the form of capital gains (increased in the share value).
Share investments are usually deemed to have an elevated level of risk, but can generate high potential profits over the years compared to bonds, property or cash.
Variation Between Principal Asset Classes
If you’ve learned something new in reading this article, you can check out this post about types of investor personality.