header photo Mesa 12/7/2017 11:00:00 AM
News / Finance

Understanding Asset Classes

The 3 Macro-Categories of Asset Classification: Stocks, Bonds and Cash Equivalents

Three Traditional Asset Classes

  • Stocks tend to involve higher risk, but have conversely provided higher returns over time.
  • Bonds tend to involve less risk, but also produce more conservative returns.
  • May be used to provide portfolio income.
  • Cash Equivalents tend to be the least risky, and thus provide the most conservative returns. Used mainly to preserve principal

Individual stock and bonds are generally not for the inexperienced investor. Mutual funds and exchange-traded funds are better options for beginners to consider. Index funds maybe the so-called poor man’s portfolio, but it’s a good start market rookies.

After you’ve taken a risk tolerance test and feel comfortable in your own self-assessment, you should present that diagnosis to a qualified financial adviser. Constructing your portfolio can be a daunting task, once you understand your own psychonomics, you can select one of the 5 basic investor profiles as an identity for building our your portfolio by asset mix.


                                           Conservative - Moderate - Growth - Growth

Large Cap Growth                 6%                  10%              13%    16%

Large Cao Value                    6%                  10%             13%     16%

Large Cap Blend                    6%                   8%              12%     15%

Mid –Small Cap Growth          3%                   4%               6%      11%

Mid – Small Cap Value           3%                    4%              6%      11%

Mid - Small Cap Blend           3%                    4%               6%      11%

Foreign Stock                        8%                 10%              14%     20%

Bonds                                 55%                 40%              20%       0%

Money Market                      10%                 10%              10%       0%

This is just an example of an asset mix allocated by a basic understanding of risk.