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Asset classes explained

Asset classes consist of a group of securities with varying degrees of risk. There are three main asset classes:

  • Equities
  • Bonds (also referred to as fixed income)
  • Cash

Each asset class has different investment characteristics, for example, the level of risk and potential for delivering returns and performance in different market conditions:

Equities

Equities (also known as ‘ordinary shares’,or ‘shares’) are issued by a public limited company, and are traded on the stockmarket. When you invest in an equity, you buy a share in a company, and become a shareholder.  Equities have the potential to make you money in two ways: you can receive capital growth through increases in the share price, or you can receive income in the form of dividends. Neither of these is guaranteed and there is always the risk that the share price will fall below the level at which you invested.

Bonds

Bonds also referred to as fixed income securities, are issued by companies and governments as a way of raising money and are effectively an ‘I.O.U’.  Bonds are designed to provide a regular stream of income (which is normally a fixed amount) over a specified period of time, and promise to return investors their capital on a set date in the future. Once bonds have been issued, they’re bought and sold between investors without the involvement of the issuer. Bonds are generally considered to offer stable returns, and to be lower risk than equities – and hence deliver lower returns than equities.

Cash

Cash tends to be held within a bank account where interest can be gained.  Alternatively, cash funds use their market power in an effort to get better rates of return on deposits than you would get in an ordinary bank account. They often invest in very short-term bonds known as ‘money market instruments’, which are essentially banks lending money to each other. In addition, cash funds can provide exposure to global currencies, which may not be easy to purchase on the open market and could be costly transactions.

Capital at risk. All financial investments involve an element of risk. Therefore, the value of your investment and the income from it will vary and your initial investment amount cannot be guaranteed. 
The figures shown on this page are fictional examples to explain the types of investments you may consider. Past Performance is not a reliable indicator of future results and should not be the sole factor of consideration when selecting a product or strategy.