Pros And Cons Of Investment Asset Classes

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Investment means utilizing your money as a capital in a specific company, individual business or any commodity for earning maximum profits in return. Investment itself is divided into three major classes known as asset classes.

What Are Asset Classes

Asset classes are a collection of objects/commodities that are eligible for investment and follow the same rules and regulations. The three main branches of investment classes are equities, fixed income and cash equivalents. These classes are further divided into their specific branches, of which we will give you a brief detail. Other than these, you also have natural resources, insurance products, precious metals as investment asset classes, but they do not dominate the market much as the three main classes do.

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What are equities

Equity simply means the stock or share that you invest/buy of a company. When you invest in a company’s shares, they use your money for generating more profit, and a part of that profit is given to you, according to the amount you invested.And if somehow, the company fails, then your money would go in the drain too, as the company will not be able to either give you the profit or give you the full amount back. This form of investment is a risky gamble for those investors who invest in millions.

Equity is categorized into three other segments; domestic equity, developed market equities and emerging equities.

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Domestic equities are usually related to public companies, operational in the United States only. Domestic equity helps investors to get dividends of the company. The company size, market strength and value are often considered with investing in asset classes.

Developed market equities, an investment equity that is meant specially for companies based in Europe and Pacific Rim. Emerging market equities are investment opportunities in developed countries like China, India and Brazil.

Fixed Income Asset Class

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In fixed income asset class investment, a person gives in an amount to the company as a loan, to which the company repays monthly with a fixed interest rate and returnable amount. Even if the company does excel in its profits, you would be given just that fixed amount. This is not risky, but it could be a boring game for those who want to aim high profits.

Fixed income is divided into U.S treasuries, treasury inflation protected securities, foreign bonds, and asset backed securities.

Cash Equivalents

Cash equivalents are liquid assets that can be converted to cash, through money market holdings, government bonds and treasury bills. This is a temporary investment, but with great benefits and low risks. Payments made for cash equivalents could be in the form of currency, money order, cheques, gift certificates and coins in some cases.

Learn what is preferred stock. Guide to some of the most popular investment terms.

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