You’ve made the decision to invest, you even know you need to diversify, but where to start? Human nature will pull you to what you know, so we thought it would be useful to outline a few of the asset classes you might not be so familiar with.
Equity is a stock that represents ownership. This is ownership over a physical asset or business. It is one of the three principal asset classes. It is the value of a business after all debts are paid, which can then be sold in the form of stocks.
A government bond is a bond issued by a nation to support public spending. They usually come with a promise to pay periodic interest payments and repay the face value on the maturity date. They are usually sold in the currency of their specific country. These are usually considered relatively low in risk and provide a benchmark for other investments to be compared.
A corporate bond is a form debt issued by a company and sold to investors. They are issued to raise funds for a number of reasons such as expansion or ongoing operations. A company needs to have consistent earnings potential to be able to issue these. A corporate bond is assessed on the ability of the company to pay back the debt which is based on future earnings.
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Learn more about High Yield Bonds which are related to Corporate Bonds.
The commodity asset class is made up of basic, interchangeable goods. The barrel of oil from one provider, for instance, should be very similar to the barrel of oil from a different provider. Commodities, for example, include grains, oil, natural gas, copper or gold.
Each investment carries a different level of risk. At Moneyfarm we build our portfolios of different levels of these asset classes and many others to ensure the overall level of risk is suited to our investors profiles.