Asset Class

What is Asset Class?

An asset class is a grouping of financial instruments that share similar characteristics, are subject to the same regulatory framework, and tend to behave similarly in the marketplace. The major traditional asset classes are equities (stocks), fixed income (bonds), cash and cash equivalents, and real assets (real estate and commodities). Alternative asset classes include hedge funds, private equity, venture capital, and digital assets such as cryptocurrencies. Asset classes typically have different risk-return profiles, respond differently to economic conditions, and have low correlations with each other — which is why holding multiple asset classes through diversification reduces overall portfolio volatility. Asset allocation — deciding what percentage of a portfolio to hold in each asset class — is widely considered the primary driver of long-term investment returns.