What is an asset?
In its simplest form, an ‘asset’ is something that you own, which can be sold or held with the intention of getting a return in the future.
Therefore, an ‘asset class’ is a group of assets that are similar to each other.
What can be in an asset class?
Asset classes can be all sorts of things, but the most common ones include shares, cash, bonds, alternatives, property, and infrastructure investments.
Each asset class has its own:
- Risk profile and
- Investment return characteristics.
For example, bonds are traditionally regarded as being lower-risk, with moderate returns.
Cash includes cash deposits, term deposits and bank bills. Cash offers the lowest risk of any asset class with steady returns generally in line with the official cash rate set by the Reserve Bank of Australia. Cash is designed for investment over the short term with a low level of potential return.
Diversified bonds include government, corporate and other bonds and loans issued both in Australia and overseas. It is considered to be a defensive asset class, as diversified bonds can often provide positive returns in years when returns on shares are negative. This asset class is designed for investment over the medium term, with the potential for moderate returns. Currency movements may also impact returns.
Australian shares include returns from company dividends and capital gains/losses as the share prices of companies fluctuate over time. Investing in Australian shares means buying ownership in companies and sharing in profits and growth. Shares can produce high returns, but the risk level is also high, and shares are designed for investment over the long term.
International shares include returns from company dividends, capital gains/losses and currency movements. Investing in international shares involves buying ownership in predominantly overseas companies and sharing in profits and growth. Shares can produce high returns, but the risks are also high, so this asset class is designed for investing over the long term. Currency movements may also impact returns.
Property includes industrial, retail, office, residential and commercial property, both in Australia and overseas. It normally produces better returns than cash or bonds, but it can be a more volatile investment and is considered a moderate to high risk investment. Currency movements may also impact returns.
Growth Alternatives consist of alternative assets with growth characteristics and include private equity, credit and absolute return investments with growth characteristics. Private equity mainly involves investment in private or unlisted assets both in Australia and overseas. Growth Alternatives can provide high levels of return, but also comes with a high risk level. Currency movements may also impact returns.
Infrastructure includes toll roads, airports, ports, power stations and other community projects and assets, both in Australia and overseas. It can produce high returns, with a moderate to high level of risk. Currency movements may also impact returns.
Defensive Alternatives include bonds, loans and absolute return investments with defensive characteristics, both in Australia and overseas. It can produce moderate returns with a moderate level of risk. Currency movements may also impact returns.