The main asset classes

An asset class is a group of investments that behave similarly and respond to the same forces. Knowing the main classes is the foundation of every portfolio, because combining classes that do not move together is what makes a portfolio robust.

The seven classes we follow

• Equities — shares, i.e. ownership of companies. The main long-term growth engine, with deep crashes along the way.
• Bonds — loans to governments and companies. Income and, often, protection in crises.
• Precious Metals — gold and silver. Stores of value that shine when trust in money falls.
• Commodities — oil, copper, uranium and more. Cyclical, inflation-sensitive, rarely buy & hold material.
• Real Estate — property, here through listed REITs. Rent income, sensitive to interest rates.
• Currencies — the euro, the dollar and others. Small moves, long trends, important for international investors.
• Crypto — Bitcoin, Ether and others. The youngest and most volatile class.

Return and risk go together

Historically, assets with higher long-term returns have also had deeper and longer drawdowns. Stocks have beaten bonds over decades, but have also lost half their value more than once. There is no high return without the risk of painful periods.

Why combine them

Different classes shine in different environments: stocks in growth, bonds in recessions, gold and commodities in inflationary or crisis periods. Because they do not all fall at the same time, a mix is far smoother than any single class. See which classes move together in the correlation matrix.

Key takeaways

• Seven asset classes, each with its own return source and risks.
• Higher return potential comes with deeper drawdowns.
• Mixing classes with low correlation smooths the ride.

By Dr. Harry Hamann · 6 min read