The value of the investments in any asset class can go down as well as up, and they may be worth less than was paid in.

What are asset classes?

If you're thinking about investing, it's useful to know about asset classes. These are types of investments which have their own risks and benefits and work in different ways. That’s why it’s helpful to know the differences between them.

There are four main groups of asset classes: equities, bonds, property and money market investments (including cash). There are also specialist and other types of investments, including commodities - which are things like metals, minerals and agricultural products.

Each investment type behaves in different ways

Each investment type has its own characteristics and reacts differently to things like world events, politics, economics and interest rate moves. The values of some assets are also more likely to rise and fall than others. You might hear this called volatility.

Because asset classes tend to behave differently, they each have a different level of risk and potential returns. As you can see below, there's a trade-off - usually you have to take on more risk if you want to aim for higher returns. 

ReturnRiskRisk and return comparisonMoney marketBondsPropertySpecialistEquities

Meet the asset classes

Now we’ll take a closer look at different types of investments and some useful things to know about them.

  • Money market instruments (including cash): These are deposits with banks and building societies, governments and large corporations. They also include investments that can have more risk but also offer higher returns than standard bank deposits.
  • Bonds: These are essentially loans to a government or company. You’ll often hold bonds for a set time and you’ll usually receive regular interest payments. You can learn more on our bonds page.
  • Property: This includes direct investments in buildings and land. It also covers indirect investment into things like shares in property companies, also known as property securities. You can learn more on our property investments page.
  • Specialist: These are investments that don't fit into one of the other asset class categories. Sometimes you won’t be able to invest into specialist types yourself. To do this, you'll need to invest through something like a fund. They include commodities (metals, mineral and agricultural products), as well as investments with specialist characteristics, such as absolute returns, which aim to have a positive return in all market conditions.
  • Equities: Equities, or stocks and shares, are part ownership in a company. You can learn more in our guide to equities.

How much should I invest in each investment type?

The mix of investments in an investment portfolio is called asset allocation. You can choose whatever mix of investments you like but experts tend to agree that having a wide mix is a good idea. This is known as diversification and, with this, you'll be aiming for a good balance between risk and return. If you invest only in one or two asset classes or types then you could be taking on quite a lot or not enough investment risk to meet your goals.

It can be difficult to build a truly diversified portfolio yourself

Financial professionals will have a team behind them, as well as the knowledge and tools they need to create a portfolio. That's why trying to build a diversified portfolio yourself could be difficult and time consuming. So, many people decide to invest in a ready-made diversified fund instead.

You can learn more in our guide to diversification:

Read more

Why consider investing through a fund?

Investing through a fund means that your money is pooled with other people’s money. There are a few reasons why you might want to think about doing this.

When you invest through a fund:

  • You have a wider range of investments: You can put your money into a larger range of investments than if you invested directly yourself.
  • A professional fund manager will look after the fund: They decide what to buy on your behalf based on the fund's aims and objectives.
  • You have more choice: There are funds that invest in a mix of different asset classes and regions, or there are others which invest in just one asset class or region.
  • You can have more diversification: You can choose funds that offer potentially greater diversification as they invest across traditional investments and regions, as well as more complex and sophisticated investment strategies that aren't usually available to individual investors.
  • You can choose to invest based on your attitude to risk: Many funds are rated by how much risk they take. This means you don’t have to take more risk than you’re comfortable with.
  • You will pay charges: All this comes at a cost. You can’t invest for free. You need to think about all the potential costs that you might be charged. So always make sure you’re aware of the costs before you invest.

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Find out more about investments

You can get more information about investments and important things to think about.

  • Diversification

    Understanding risk and diversification

    Find out why diversifying investments and being mindful of risk can help you.

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  • risk

    Assess your attitude to risk

    Take this quick questionnaire to get a better feel for the level of investment risk you may feel comfortable with.

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