Understanding Asset Classes

Interested in buying a commercial property but not really sure where to begin? ReDev Properties, an asset management company in Edmonton, has expert asset management advisors. As a profitable real estate investment begins with understanding the basics of the market, we begin by showing you different types of investments called asset classes, and help you decide how to best grow your investment.  Keep reading to the learn the basics on asset classes.

What is an Asset Class?

An asset class is a category of funds that displays similar characteristics, behaves similarly in the marketplace and is subject to the same laws and regulations. The three main groups of assets are stocks (also known as equities), bonds (or fixed income, and cash equivalents (or money market instruments).

Examining Asset Class

Financial advisors look at investment tools as asset class categories that are used for distinction purposes. Every asset class will reflect a different return investment and different risk characteristics; each asset class’ performance will vary in different marketplaces. In order to maximize returns, investors will often reduce the risk through diversifying asset classes.

As a way to help investors diversify their real estate portfolio, financial advisors focus on different asset classes. Each asset class will have different degrees of risk as well as different cash flows. Investing in multiple varying asset classes helps to ensure diversity in investment selections. In short, diversification helps a portfolio reduce risk as well as increases the chances of making a return on the investment.  

Investing Strategy

Factors such as income, growth, and value are tied to investment strategies; these factors aid in identifying and categorizing investment options for maximum return on investment based on specific criteria. Some financial analysts concern these criteria with performance metrics, for example, price-to-earnings (P/E) ratio or earnings-per-share growth (EPS). Other analysts are more concerned with the asset class rather than its performance. An investment in a certain asset class will exhibit a set of characteristics that is based on the class. Any investments in the same asset class usually behave similarly and have similar returns.

Asset Class Types

The most liquid asset classes are stocks, bonds, cash, and commodities and are the most quoted asset classes. Liquid assets are assets that can be easily converted to cash. Some analysts may suggest an investment in crowdsourcing, venture capital or hedge funds as alternative investments. More alternative types of investments generally are less liquid. It should be noted that just because an asset is not liquid doesn’t mean it has no return potential, but rather it may take more time for the asset to convert to cash.

A financial advisor will be able to help you understand what types of assets and investments will get you the most return on your portfolio. Call us to learn more about our asset management services at (416) 225-5700