Question

List and explain five different asset classes. What are some reasons individuals would invest in these types of asset classes?

Answer 1

Five different assets classes are:

1.    Shares

A company’s capital is divided into shares. Each share forms a unit of ownership in a company. Shares can be classified as equity shares or preferences shares.

2.    Bonds

A contract where a person borrows money, from a company or government for a period of time in return of interest payments. There are two types of bond coupon bonds and zero coupon bonds

3.    Property

A person, government or a company acquiring a piece of land. Whether it be commercial or residential possession.

4.    Commodities

Are a part of our everyday lives, Traditional commodities are raw materials that are further processed. Commodities like, cotton in form of shirts whilst we eat oats and cereal in breakfast are also commodities. You can invest directly in commodities or trade them.

5.    Cash

Includes currency coins, hard cash, and the amount of cash deposited in the banks either in current account or savings account.

Individuals would invest in equity and bonds is because they want to enhance their returns and to smooth out any volatility in their portfolio. Investment in property, can be done to increase their return on investment over a period of time