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Understanding Different Asset Types

Today’s investors can choose from an abundance of investment products, from stocks and bonds to mutual funds and annuities. If you’re faced with so many choices, how do you decide which asset types are best for you? Getting to know the potential benefits and downsides of these investment products is a good place to start. It’s also one of the most important steps investors can take to create an investment strategy than can help them reach their long-term financial goals.

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Which Financial Asset Types Should Investors Consider?

As you prepare for retirement, you’ll probably have to consider the types of financial assets in which you’d like to invest. Are you interested in stocks? What about bonds, gold or real estate? Before selecting any specific asset type for your retirement portfolio, it’s important to first consider some important questions.

Questions to Ask Before Choosing Investment Assets

  • What are your long-term investing goals?
  • What is your investment time horizon (i.e., how long do you need your money to last)?
  • If you already have an investment portfolio, what is your current asset allocation (that is, mix of stocks, bonds, cash and other asset types)?
  • What is your personal risk tolerance, or how comfortable are you with short-term volatility?


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Understand the Available Assets

With the answers to these questions in mind, you can begin to familiarize yourself with the asset types available to you. This information will help you select assets best suited to your personal situation and goals.

But, be careful. You could put your investment goals at risk if you invest in asset classes that aren’t suited to your circumstances.

To help you get started, we’ve put together some information about common asset types.

Popular Asset Types Available to Investors

Image of a screen with stock market ticker symbols with a black background

Stocks

Stocks represent ownership in a company and a claim on its future profits. As a company’s perceived value rises and falls, the value of its stock can move up and down, too.

Stocks, or equities, can experience bouts of short-term volatility. They have, however, historically provided higher long-term returns than nearly every other asset class. Think of higher short-term volatility as the “price” investors must pay for stocks’ higher potential long-term returns. This can be important if your financial goals require long-term growth.

Investing in Stocks for Retirement
Woman looking at print outs of graphs spread out on desk while another woman points at a graph on a clipboard with a pen

Bonds

A bond is effectively a loan an investor makes to an issuer. The issuer can be a company, government or other entity. The investors, or bondholder, lends the issuer the face value of the bond for a stated time, or “contract period.”

The issuer promises to repay the face value of the bond, plus interest. At regular intervals, the issuer makes interest payments to the bondholder.  The issuer then repays the face value amount, or principal, at the end of the contract period.

Bonds, or “fixed income,” generally provide lower short-term volatility than stocks. Lower volatility can mean relatively lower potential long-term returns. This characteristic may make bonds more appropriate for investors with shorter time horizons or specific cash needs.

Learn More About Bonds
A piece of paper with two graphs a pen and a pair of glasses

Mutual Funds

Mutual funds are investments vehicles that pool money from various investors. A wide variety of mutual funds exist, all with their own fees and costs. Mutual funds can be a convenient way to invest. Investors, though, must accept that they have no control over the fund’s investment selections.

Also, the lack of personal customization means large portfolios could be sacrificing returns and tax efficiency when they hold mutual funds in a retirement account.

A Closer Look at Mutual Funds
Person using a calculator on a table with graphs and a laptop

ETFs

Exchange-traded funds (ETFs) work much like mutual funds. They pool investors’ money to build a diversified portfolio of stocks, bonds or other securities. Many ETFs seek to mirror the performance of a particular index, sector or asset class.

ETFs offer the potential for affordable diversification. That can be especially true for investors with smaller portfolios. The lack of personalization and the risk of overdiversification, however, are potential drawbacks of ETFs.

ETFs for Retirement
  • Image of a screen with stock market ticker symbols with a black background

    Stocks

    Stocks represent ownership in a company and a claim on its future profits. As a company’s perceived value rises and falls, the value of its stock can move up and down, too.

    Stocks, or equities, can experience bouts of short-term volatility. They have, however, historically provided higher long-term returns than nearly every other asset class. Think of higher short-term volatility as the “price” investors must pay for stocks’ higher potential long-term returns. This can be important if your financial goals require long-term growth.

    Investing in Stocks for Retirement
  • Woman looking at print outs of graphs spread out on desk while another woman points at a graph on a clipboard with a pen

    Bonds

    A bond is effectively a loan an investor makes to an issuer. The issuer can be a company, government or other entity. The investors, or bondholder, lends the issuer the face value of the bond for a stated time, or “contract period.”

    The issuer promises to repay the face value of the bond, plus interest. At regular intervals, the issuer makes interest payments to the bondholder.  The issuer then repays the face value amount, or principal, at the end of the contract period.

    Bonds, or “fixed income,” generally provide lower short-term volatility than stocks. Lower volatility can mean relatively lower potential long-term returns. This characteristic may make bonds more appropriate for investors with shorter time horizons or specific cash needs.

    Learn More About Bonds
  • A piece of paper with two graphs a pen and a pair of glasses

    Mutual Funds

    Mutual funds are investments vehicles that pool money from various investors. A wide variety of mutual funds exist, all with their own fees and costs. Mutual funds can be a convenient way to invest. Investors, though, must accept that they have no control over the fund’s investment selections.

    Also, the lack of personal customization means large portfolios could be sacrificing returns and tax efficiency when they hold mutual funds in a retirement account.

    A Closer Look at Mutual Funds
  • Person using a calculator on a table with graphs and a laptop

    ETFs

    Exchange-traded funds (ETFs) work much like mutual funds. They pool investors’ money to build a diversified portfolio of stocks, bonds or other securities. Many ETFs seek to mirror the performance of a particular index, sector or asset class.

    ETFs offer the potential for affordable diversification. That can be especially true for investors with smaller portfolios. The lack of personalization and the risk of overdiversification, however, are potential drawbacks of ETFs.

    ETFs for Retirement

Annuities

In its most basic form, an annuity is an insurance contract. An investor pays an insurance company a premium. In return, the investor receives a steady stream of payments over time.

Annuities can sound like an excellent option for a retirement portfolio. In fact, they’re often sold as investments that can help protect assets and future income. But there are several potential pitfalls to be aware of when buying an annuity—pitfalls that might even undermine an investor’s long-term investment goals.

The Potential Perils of Annuities: Annuities

Alternative Investments

When considering alternative asset types—e.g., cryptocurrencies, private equity, non-traded real estate investment trusts (REITs), and commodities—it is important to understand each type’s potential risks and returns.

Alternative investments may serve a specific purpose. They may even add value for investors in certain situations. Alternatives, though, may also deliver high fees, illiquidity, decreased investment flexibility or other potential issues.

The Pros and Cons of Alternative Investment Assets: Alternative Investments

Rental Income

Investors sometimes find allure in the idea of real estate as an investment. They’re attracted by the thought of a steady flow of rental income. But, real estate investing also brings complexity, with a number of potential risks and drawbacks that deserve careful consideration.

Rental Income in Your Investment Strategy: Rental Income

Gold

Is gold, as some investors believe, a robust, time-tested safe haven? Does it hedge against market declines and protect purchasing power from inflation? Unfortunately, gold’s reputation may be more “shine” than actual value.

Gold Doesn’t Always Glitter: Gold
A dark green book cover with a title that reads "The Definitive Guide to Retirement Income" The book cover ends with a fisher investments logo at the bottom.

Definitive Guide to Retirement Income

Do you know how much your retirement will cost? Do you know how to generate the retirement income you’ll need? This guide will help you find answers to these and other important questions.

Download the guide

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