Asset Classes explained
Conservative Assets/Secure Assets
Generally speaking, these provide a lower rate of return in the short and long term and are used to reduce the risk of potential losses. Common examples include:
Fixed interest or bonds
When money is invested in a bond, a repayment date is set for the company or government entity which issued the bond. Interest is payable until that date. The value of bonds rises and falls as interest rates and market forces change and tends to vary less sharply than the value of shares.
Cash
The way cash is invested is similar to bonds, but it's considered less risky because of very short-term repayment periods. However, this can mean that the earnings may not stay ahead of inflation in the long term.
Growth Assets
Historically, these have provided a higher rate of return over the long term - but the risk is also higher. Common examples include:
Australian and international shares
A share is a small slice of ownership in a company. Share prices can often rise and fall dramatically in the short term. However, over the long term they have historically provided higher returns. A portfolio that includes international shares gives exposure to a wider range of companies and industries for greater diversification. Shares can also be purchased in emerging economies, these are the fast growing economies which would include China, Brazil, and India amongst others.
Property and Infrastructure
This usually includes investments in commercial, retail, industrial, residential or tourism properties. Like shares, property has historically earned good returns over the long term. Infrastructure investments are typically are regulated assets that serve critical monopoly roles in an economy, they may include toll roads, power generation plants, airports and ports.
Alternative assets
Are a broad class of investment strategies that are focused more on deriving returns from the skill of underling fund managers rather than the return to a specific asset class. Alternatives may fall into either the Conservative or Growth asset category.
