Asset Classes Guide

 


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Money earned can either be consumed or saved. When money is saved it can either be hoarded or be invested to enhance its value. An investment project requires information about the various avenues available.

The general term used to refer to the investments made is ‘assets’. Assets reflect one’s investment in cash, bonds, stocks or other sources that generate income. Out of the various assets available for investment, the most common one is Stock. Stock refers to the shares of the companies. It can be of various types - capitalization stocks, mid capitalization stocks, and small capitalization stocks – to name a few. Trading in stocks can be very profitable; however, the risk involved in the stock is equally high. Playing the odds in the stock market is one of the riskiest ways of earning money. Small factors can have adverse effect on the market, thereby leading to huge losses. Another trading instrument that one can invest in, is bonds. Bonds are similar to debentures i. e. they represent the loan given to an entity. Bonds are usually issued by public bodies like the Municipality, though corporate bodies can also issue bonds. They come in varieties and the investor can choose depending on his preference. Bonds are comparatively less risky than the stock and offer a steady source of income. One can also go for bond funds to further minimize the risk.

A mutual fund is a group of investors that pool in money for investment and then share the income. When an investor buys the shares of a mutual fund, he becomes the shareholder of that fund. According to their investment objectives mutual funds can be divided in to various categories. They are considered to be a safe investing option as they are cost efficient and easy to invest in. The investor usually does not have to decide between various scripts to invest in.

Cash equivalents are safe option to invest in for the risk averse. These assets are characterized by liquidity, price stability and a regular income. The only drawback is that the return in case of cash equivalents may be low as compared to that earned through the stock market. Cash equivalent include treasury bills, banker’s acceptances and money markets.

IRAs are beneficial especially to families having a single bread earner. Its is a kind of saving plan in which money is deposited at regular intervals. An added attraction is that the money contributed is normally exempted from tax.

Many people invest in real estate to earn a regular income. Their strategy is to invest in the properties and rent them. These properties then provide a steady stream of income. However, before investing in land the investor should study the tax laws, depreciation and accounting implications, and the tenancy laws.

An investor should select the most appropriate asset to invest in, depending on his financial capacity and the returns he expects. Professional aid generally helps in deciding the right asset. An investment in the future helps one to prepare for the unforeseen and secure one’s financial freedom.

Mansi aggarwal writes about asset classes. Learn more at http://www.assettypes.com

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