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Fin24.com asks: What is an asset class?
A financial dictionary will tell you it's a group of securities that show similar behaviour and characteristics in the marketplace. There are three main asset classes: equities (stocks), fixed income (bonds) and cash or money market instruments.
Some investors add property and commodities to the asset class mix.
The
asset classes explained:
Equities, or company shares listed on the JSE, allow investors ownership of a small piece of the company. Share prices vary and change every day as the perceived price of the company changes. Dividends are payable to shareholders.
Bonds
are in essence a debt investment in which you loan money to a business or the
government, which borrows the funds for a specific period of time at a fixed
interest rate. So the indebted entity (issuer) issues a bond which states the
interest rate (coupon rate) that will be paid when the borrowed funds are to be
returned (maturity date). Examples are corporate bonds, government bonds, and
so on.
Cash equivalents are short-term investments which are highly liquid and have a high credit quality. Examples are bank certificates of deposit, bankers' acceptances and corporate commercial papers.
Property investment, aside from buying a nest of your own, can also include investing in listed property companies. Although similar to other shares, these investments offer a steady income flow in the form of income payouts. The company manages a number of buildings and distributes the rent it receives to its shareholders.
The mining industry in South Africa represents 35% of the JSE’s market cap, but for investors who want to avoid investing in companies and, by default, in their management, gold, platinum and other commodities like silver can also be bought and traded.
- Fin24.com
