Asset Classes
Know the three asset classes
Stocks, bonds, cash — these are the most common broad investment categories known as asset classes. They have different qualities and strengths, as well as risk and reward characteristics. Knowing how the three main asset classes differ is important to choosing the right investment strategy for your own needs.
- Stocks — Stocks are shares of ownership in a company. Shares earn or lose money based on the increasing or decreasing share value. Stocks are also called equities.
- Bonds — Bonds represent money loaned to the issuer (governments, municipalities, other entities). They earn money from the interest paid on that loan. Bonds are also called fixed-income investments.
- Cash — Treasury bills, certificates of deposit (CDs) and other short-term securities are called cash or cash equivalents. They earn money through interest, which is generally set at a guaranteed rate.
It's important to note that the more general term securities is often used to describe these investment products. Securities are simply transferable certificates of ownership of stocks, bonds, and other investment products.
Explore the risks and returns
Take a closer look at each of the asset classes — including the compelling reasons to choose them as part of your portfolio, as well as their relative level of risk.
| Asset class | Major types | Reasons to choose | Major risk |
| Stocks |
|
| High |
| Bonds |
|
| Medium |
| Cash equivalents |
|
| Low |
As you see above, each asset class has different levels of potential risk and reward — which, combined together, can create a diversified and balanced investment portfolio. A sound investment strategy takes both risk and return potential into account. Investing across several asset classes can add diversification and help manage risk. Adjusting the mix of asset types — your asset allocation strategy — can have a significant impact on your ability to reach your investment goals.
Learn more
Explore other Investing Essentials topics through the menu to the left. Access extensive reference materials through the Literature Library. Or contact a financial advisor for advice on the right investment strategy for your specific goals.