Explaining the Different Types of Asset Classes

By Becca Stanek · March 22, 2023 · 5 minute read

We’re here to help! First and foremost, SoFi Learn strives to be a beneficial resource to you as you navigate your financial journey. Read more We develop content that covers a variety of financial topics. Sometimes, that content may include information about products, features, or services that SoFi does not provide. We aim to break down complicated concepts, loop you in on the latest trends, and keep you up-to-date on the stuff you can use to help get your money right. Read less

Explaining the Different Types of Asset Classes

If you’re new to investing, you might find yourself asking, “What is an asset class?” In short, there are multiple kinds of investments, and when a group of them share similar characteristics, they can be considered an asset class.

One particular class of assets is likely to have different levels of risk and return from another class, and they’re likely to perform differently from each other in the market. As such, financial advisors often try to include investments from multiple types of asset classes in a portfolio. Although all investing comes with some risk, diversification in your portfolio’s asset classes distributes your money in a way that might reduce your vulnerability and mitigate risk.

What Are the Different Asset Classes?

There are a number of types of asset classes you might consider as you build your portfolio. Beyond these larger asset classes, there are subgroups within them that have similar characteristics. Subgroups could include stocks from a certain industry or company size, or a particular kind of real estate, like residential, commercial, or retail.

Further, it’s sometimes challenging to precisely pigeonhole an asset. For example, exchange-traded funds (ETFs) can defy clear classification, as they can contain investments from multiple asset classes. Plus, some financial analysts consider domestic investments to be in a different asset class from foreign ones.

Fortunately, you don’t have to be able to clearly classify each asset into a hard and fast class to invest in them as part of your diverse portfolio. Here’s a look at the different types of asset classes you might encounter in your investing journey:

•   Stocks (equities): Each share of stock is a single ownership share in a publicly-traded company, meaning a company that trades on a stock exchange. You can receive dividends from stocks if a company pays out part of its profits, or you might get capital gains when you sell if the price of the stock has risen.

•   Bonds (fixed income): These are loans you make to a company or government for a predetermined amount of time at a certain amount of interest. These include Treasury bonds, corporate bonds, municipal bonds, and mortgage- and asset-based bonds.

•   Money market accounts or cash equivalents: When you put money into a money market account, savings account, or certificate of deposit (CD), you’re lending money to the financial institution. In exchange, you get paid interest on the money.

•   Real estate: This can involve buying real estate for the purposes of renting the property to generate income or to earn profits as the value of the property appreciates. Some experts would move real estate up to the traditional asset list.

•   Commodities: Some investors put money into metals, energy products, livestock, agricultural products, and so forth. A common way to do this is through what’s called a futures contract. This is an agreement to buy or sell a certain commodity at a specific quantity at a predetermined price at a later time.

•   Cryptocurrencies: This involves investing in digital currency that is largely unregulated. Typically, cryptocurrencies rely on a direct financial exchange between users, with no involvement from a bank or other third party. Crypto assets are highly volatile, so investors should exercise caution before buying.

•   Real estate investment trusts (REITs): REITs invest primarily in real estate or real estate loans. They are traded like stocks.

Which Asset Classes Are Right for You?

Basically, it depends. When thinking about which asset classes you should invest your money in, it might help to consider your unique goals.

Goals-based investing is an investment approach where, rather than looking at market benchmarks, you focus on what you need your money for and when you’ll need it. This approach allows you to plan for different goals — think retirement, a house down payment, your kids’ college tuition — using different investment strategies. You may also hear it called goals-driven investing. To invest according to this philosophy, it’s key to know what your goals are, both short-term and long-term.

There are also traditional investment strategies to try. These measure risk tolerance and look at portfolio returns. Using that information, you’d decide how you wanted to invest and what your portfolio should look like.

Remember that the decision you make on which asset classes you want in your portfolio isn’t a final one — things change, and so can your portfolio. Additionally, your portfolio can include investments in multiple asset classes, each with their own levels of risk and return.

Over time, assets have returns and losses, which means the value of each asset changes. This is why an important part of investing is portfolio rebalancing, which simply means adjusting your investments — i.e., making changes so your asset allocation continues to fit your goals and risk tolerance. Rebalancing also gives you an opportunity to review what’s in your portfolio and make sure that’s still where you want to invest.

Where Should You Start?

How you should invest typically depends on multiple factors, including your personal preferences, your risk tolerance, and how actively you want to be involved. In other words, it’s important to get insight into what type of investor you might be.

From there, you can identify which types of asset classes might make sense for your portfolio. Just remember that you’ll want to invest in a mix of different types of assets to ensure portfolio diversification.

The Takeaway

As you can see, there’s a wide variety of different types of asset classes. There are more traditional asset classes, like stocks and bonds, and then there are newer asset classes, including things like commodities and cryptocurrencies. You might also run into alternative asset classes when building your portfolio, such as REITS. Just remember that which types of asset classes are right for your portfolio depends on your investing goals and personal preferences.

If you need help getting your investing efforts off the ground, SoFi offers both automated and active investing, depending on how hands-on you want to be. If you choose SoFi automated investing, SoFi will build and manage your portfolio without charging you an advisory fee. With SoFi active investing, you can invest in what you love, trade stocks of brands you know and believe in, and discover new opportunities based on your interests along the way — and pay no commission.

Take a step toward reaching your financial goals with SoFi Invest.

SoFi Invest®
The information provided is not meant to provide investment or financial advice. Also, past performance is no guarantee of future results.
Investment decisions should be based on an individual’s specific financial needs, goals, and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC registered investment advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal. Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or prequalification for any loan product offered by SoFi Bank, N.A.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.

All your finances.
All in one app.

SoFi QR code, Download now, scan this with your phone’s camera

All your finances.
All in one app.

App Store rating

SoFi iOS App, Download on the App Store
SoFi Android App, Get it on Google Play

TLS 1.2 Encrypted
Equal Housing Lender