What are asset classes?
When you start looking into investing, you will see a lot of different terms being used. You may commonly see the term ‘asset classes’ which can be further broken down into income assets and growth assets. We explain what they mean below.
Income Assets (also known as defensive assets)
Cash, bonds and mortgage securities are considered income assets. They typically deliver returns in the form of income (i.e. pay regular income or interest payments to you).
Income assets are generally more stable and may feature:
- Typically lower returns than growth assets.
- Generally less fluctuations in returns over the short-term when compared with growth assets.
Returns are generally lower than growth assets over the medium to long-term, balanced with lower risk.
Shares and property are classified as growth assets. Over time they generally provide returns in the form of capital growth.
Growth assets can be considered higher in risk and may feature:
- Capital growth over the long-term with some income.
- Fluctuating returns generally over the short-term, levelling out over the long-term.
- The potential to produce higher returns compared to other asset classes, balanced with higher risk.
Asset classes explained in more detail
The five main asset classes are:
Includes bank accounts and term deposits and may include higher interest paying securities. Generally, provides a regular income stream and is the lowest risk of all asset classes.
Fixed interest (bonds)
Bonds have low to medium risk, provide a reliable income stream and potential for some capital growth. Bonds can be issued by a corporation, bank or government body in return for cash. Typically for short to medium-term investors. They usually offer a higher return than cash investments.
Generally have a low to medium risk and provide a reliable income stream. They usually offer a higher return than cash investments.
Australian and international shares
Potential for higher returns and capital growth compared to other assets. Typically, higher in risk and suitable for long-term investors.
Includes property, property trusts and other securities across residential, commercial, retail and industrial property investments. Returns may include regular income and capital growth. Generally, a lower risk growth asset than shares, but riskier than cash and bonds. Typically suited for medium to long-term investors.
Typically, a managed fund will be made up of a combination of income and growth assets. The combination will be different depending on the investment style it is catering to. For example, a conservative style of managed fund will be made up of a higher combination of income assets compared to growth assets. Vice versa for a growth/high growth investment style.
Ready to invest? Check out our range of Managed Funds.
Where do I start?
Investing can help you reach your financial goals sooner but can be overwhelming sometimes. We’re here to help simplify the process and help you get started.
Why invest in a managed fund
A managed fund is a professionally managed investment portfolio that pools your money together with the money of multiple investors. An Investment Manager then buys and sells shares or other assets (property, cash, bonds etc) on your behalf.
Risk vs return
All investments carry risk – even investing in cash. Market conditions, inflation, changes to interest rates and economic downturns can all have an impact on your investment.
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