Asset class
A broad category of investments that behaves distinctly (equities, bonds, gold, commodities): the building blocks of a diversified, tactically allocated portfolio.
An asset class is a group of investments with similar characteristics and drivers: equities, government bonds, gold, broad commodities, and so on. Each responds differently to growth, inflation, and market stress.
Because classes behave distinctly, spreading capital across several is the foundation of diversification and of tactical asset allocation, which shifts emphasis between classes as conditions change. The Charter reads regimes across five such markets: equities, government bonds, gold, commodities, and bitcoin.
Related terms
- Tactical Asset Allocation (TAA)Adjusting a portfolio's mix of broad asset classes over time in response to the market environment, instead of holding fixed weights regardless of conditions.
- DiversificationSpreading capital across assets that behave differently, so weakness in one is offset by others. It reduces avoidable risk but does not remove market-wide risk.
- CorrelationHow closely two assets move together, from +1 (in lockstep) to −1 (opposite). When it is low, it is what makes diversification work.
Read it in context
- GoldGold has no issuer, no contract and no internal cash flow: nothing about it pays you for holding it. Its return comes entirely from the change in its price, which makes it a different kind of asset from a share or a bond rather than a defective version of either.
- Price, value and expectationsA price is not a measurement of what something is worth. It is what buyers and sellers will trade at now, and it already contains what they collectively expect. That is why an announcement can be good and the price can still fall.
- What a world equity ETF actually holds"World" on a fund is not a description of the planet. It names an index, and the major world indices cover very different universes. Some exclude emerging markets entirely, and most weight by market value, which concentrates them wherever prices have risen most.
- Real versus apparent diversificationCounting your funds answers one question about diversification and is silent on another. It tells you something about how exposed you are to any single company failing; it tells you nothing about what your holdings have in common. That is what decides whether they fall together.
- What tactical asset allocation isTactical asset allocation, or TAA, adjusts how much of a portfolio sits in each broad category as conditions change, rather than holding fixed proportions through everything. Those shifts may be judged by a person or decided by written rules, but they move between whole categories, never between individual companies.