The term asset comes from the English language and you may have already noticed it if you are familiar with investments and finance. It means something like "wealth" or "assets". In this article, you will find out what exactly assets are and what different types there are.
Assets Definition
Assets are another term for Asset classes or Assets on the stock exchange. The financial markets distinguish between different asset classes that share common characteristics.
In another context, there is a second meaning for the term asset. It can refer to information and data or media content. It also refers to personal skills in the economic field. In this article, we use the definition of the stock exchange.
Experienced investors usually have a portfolio of different assets. This means that the Diversification or risk diversification can be improved. Risks can be reduced in this way as the portfolio is balanced. If an investment performs worse, it can be offset by profits from another asset.
In addition, assets differ greatly in their respective characteristics and objectives. The three basic objectives of an investment are Security, Profitability and Liquidity. These are competing objectives that can never all be achieved with just one investment. It is therefore advisable to build up a portfolio consisting of a return component and a security component.
The Asset allocation should be adapted to your individual financial strategy. Investors differ in their expectations and risk appetite. While some investors place more value on security, others want to achieve higher returns.
Which assets can be traded?
There are many different asset classes, each with their own advantages and disadvantages. Below you will find an overview of some popular examples of asset classes that you can trade.
ETFs
A ETF enables investors to invest in a large number of shares. It is based on an index that has been compiled in advance according to certain criteria. It is therefore a passive assetwhich is not determined by a fund manager.
This form of investment is traded directly on the stock exchange. ETFs are particularly popular due to their low fees and the possibility of diversification. The risk of your investment is reduced by spreading it across several securities.
There are ETFs that contain shares, bonds or commodities. Some are globally diversified and cover the market as broadly as possible, while others specialize in certain countries or sectors. Less broadly diversified ETFs are suitable for advanced investors.
Assets such as ETFs are long-term oriented. The investment horizon should be at least 10 to 15 years. Buying exchange-traded funds is a way of making private provision for old age or working towards specific financial goals in the future.
Shares
Shares are securities that are traded on the stock exchange and issued by a stock corporation. With the purchase of shares you receive Company shares. Corporations can make profits through Dividends to its shareholders.
Equities are an attractive asset class with high earnings potential and are suitable for traders. They are associated with risks due to sometimes high fluctuations. To counteract possible dangers, professional investors rely on diversification to reduce their portfolio risks. Pay attention to Industry diversity and different countries so that your portfolio is not dependent on the performance of a particular sector.
The purchase of individual shares can be oriented towards the short or long term. Make sure you decide on a strategy in advance and take your financial priorities into account. It's important to know your Willingness to take risks to know.
Bonds
Companies, countries or institutions give Bonds out. You can buy a bond for a pre-agreed period and lend your money. In return, at the end of the period, you will receive your invested amount including Interest get them back. Bonds can be purchased on the stock exchange during normal opening hours.
The bonds of certain countries in particular are seen as an option for a security component in your own portfolio. Germany has a high credit rating. This means that it is very likely that the country will be able to repay the amount lent, including interest.
Forex
At Forex or foreign exchange trading two currencies are traded against each other, which is why Currency pairs is spoken. Companies, private investors and organizations around the world exchange Base currency and Exchange rate currency with each other.
There can be strong price changes in this area, which traders should be aware of beforehand. Forex trading can be carried out through short or long positions. Investors bet on the fall or rise of certain currencies.
Futures
At Futures it is about Financial contracts. They enable the buyer and seller to agree on a price at a certain point in the future. The buyer undertakes to buy the underlying asset at the agreed price. The seller undertakes to buy before or at the expiry of the contract.
Futures are traded in various commodities such as currencies, indices, precious metals, grain or oil. A distinction is made between these underlyings in "Commodity futures" or "Financial futures". The latter describe intangible underlyings such as shares. Commodity futures comprise physical underlyings such as precious metals or commodities.
Conclusion: Different assets for more diversification
The term assets describes Asset classes or Assets. These differ greatly in the extent to which they enable the competing goals of profitability, liquidity and security. Not every asset is suitable for every investor.
Customize your Asset allocation to your personality and your financial goals. Find out whether you want to invest for the long or short term, how willing you are to take risks and where your priorities lie. You can then build up a broad-based portfolio that contains different assets and thus offers sufficient diversification.
If you are a long-term investor and want to save for retirement or invest for long-term goals, ETFs could be a suitable choice. If, on the other hand, you are already an experienced investor and would like to increase your returns, you could look into futures or forex. Shares offer Attractive yield opportunities for experienced investors who have time and sufficient knowledge.
