Understanding Different Asset Types

There is an abundance of investment products—or “assets”—available to investors today. Understanding their potential benefits and downsides is an important step in creating an investment strategy designed to help you reach your long-term financial goals.

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Which Financial Asset Types Should Investors Consider?

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

For Example:

  • What are your long-term investing goals?
  • What is your investment time horizon, or how long do you need your money to last?
  • How about your personal risk tolerance?
  • If you currently have an investment portfolio, what is your current asset allocation—or mix of stocks, bonds, cash and other asset types?


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Understand the Available Assets

Based on the answers to these questions, you’ll need to understand the assets available for you to choose from to ensure they are best suited to your personal situation and will help you reach your goals. Investors who lack knowledge about the assets they are purchasing could be putting their investment goals at risk by investing in the wrong asset class for their particular circumstances.

Let’s Take a Look at Some of the More Popular Types of Assets Available to Investors

  • Stocks
  • Bonds
  • Mutual Funds
  • ETFs
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Stocks

Stocks, also called equities, represent ownership in a company and its future profits. As a company’s perceived value rises and falls, the value of its stock rises and falls.


While stocks often experience more short-term volatility than some other asset classes, they have historically provided higher long-term returns than nearly every other asset class. This can be very important for investors whose financial goals require long-term growth.

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Bonds

A bond, also known as “fixed income,” is effectively a loan an investor makes to a company, government and other entities (“issuers”).A bondholder lends the issuer the face value of the bond for a stated time period (i.e., the bond’s maturity.


The issuer promises to repay the principal plus interest, with payments of fixed rates at regular intervals. Bonds generally provide lower short-term volatility than stocks, which may be beneficial for investors with shorter time horizons or specific cash needs.

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Mutual Funds

Mutual funds are investments set up to manage a pool of money from various investors. Individual investors have no control of the investments within the funds. There are many types of mutual funds available—each with their own fees and costs. Investors with large portfolios could be sacrificing returns and tax efficiency when using mutual funds in a retirement account.

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ETFs

Exchange-traded funds (ETFs) are similar to mutual funds, pooling money from many investors to purchase 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 a potentially affordable way to achieve some level of diversification, especially for investors with smaller portfolios. Pitfalls of ETFs include lack of personalization and the risk of overdiversification.

Annuities

In its most basic form, an annuity is an insurance contract in which an investor pays an insurance company an amount of money called a premium, and, in return, receives a steady stream of payments over time.


Often sold as investments that can help protect assets and future income, annuities often sound like an excellent option for your retirement portfolio. But there are several unintended consequences to be aware of when buying an annuity—and they might even undermine an investor’s long-term investment goals.

Alternative Investments

When considering alternative asset types—cryptocurrencies, private equity, non-traded real estate investment trusts (REITs), commodities and many more—it is important to understand the potential risks and returns associated with them.


These alternative investments may serve a specific purpose and may add value for investors in certain situations, but they may also bring decreased investment flexibility, high fees, illiquidity or other potential issues.


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Rental Income

Many investors find allure in the idea of steady rental income or real estate as an investment. But real estate investing can be complex with a number of potential risks and drawbacks that deserve careful consideration.

Gold

Some investors believe gold is a robust, time-tested safe haven, acting as a portfolio hedge against market declines and protecting purchasing power from inflation. Unfortunately, gold’s status may be more symbolic than anything else.

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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.

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