Types of asset class
The traditional four types of asset class are:
- Equities (or stocks): the equities that make up the ownership of public companies.
- Fixed income: investments that pay interest over time, then return the original sum paid.
- Money market: cash and its equivalents, very liquid but without much room for growth. Currencies are included in this class.
- Alternative investments: some very popular markets are classed as alternative investments.
To prevent the risk associated with investing in one section of the market, many investment strategies recommend spreading trades out across many or all of the above asset classes. This is referred to as diversification (or diversifying).