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Investment Assets

An asset is quite simply what you invest in, the actual individual item which you buy in the hope that it will generate income or appreciate in worth over time and can thus be sold for a profit in the future. Wealth management is about building an investment portfolio which is made up of assets. There are three main asset classes, and several others which fall under the category of alternative assets.

STOCKS/EQUITIES

STOCKS/EQUITIES


This is when you invest in a company’s shares – making a percentage of any profit that the company makes and having voting rights at general meetings and thus a say at how the company is run (usually restricted to electing the board of directors at the annual general meeting) – usually in the hope that you can sell them at a higher price at a future date. In wealth management, stocks offer the best opportunity for great profit, especially in bull markets. Also known as shares or equities,…

BONDS

BONDS


This is the less ‘sexy’ cousin of stocks in an investment portfolio. It’s when you invest by effectively loaning money to a corporation or the government, and thus buying a debt that needs to be repaid. That entity will then pay you back over a set period of time at a fixed interest rate. Investing in bonds is usually safer than stocks but offer lower yields so they are the safer means in wealth management. A company will usually issue bonds when it needs to raise money for future investments.

CASH EQUIVALENTS

CASH EQUIVALENTS


These are investment securities where you invest your money in, effectively, different types of savings accounts, and then receive a yield in terms of an interest rate; they are short-term and highly liquid, with high credit quality, and they are usually low risk but low return. They include government treasury bills, corporate commercial papers and money market instruments. A Certificate of Deposit note (CD) is a type of cash equivalent from a bank where you put your money into a savings…

ALTERNATIVES

ALTERNATIVES


This refers to any type of asset in an investment portfolio which doesn’t fall under the umbrella of any of the other three asset classes.

OPTIONS

OPTIONS


These are extremely versatile and can be used in many different ways in your wealth management, and can be speculative and high risk, or conservative and risk reducing. They are financial derivatives where one party (writer) sells a contract to another party (holder) which offers the buyer (holder) the right, without the obligation, to sell a specific asset at an agreed-upon price (called the ‘strike price’) on a specific date (called the ‘exercise date’) or during a specific period of…

COMMODITIES

COMMODITIES


These refer to raw materials or primary agricultural products, they are quite often used as inputs in the production of other goods or services, and, while they may differ slightly in quality across different markets, they are essentially uniform across different producers. They are further broken down to different classes: precious metals, like gold, silver, or platinum; non-precious metals, like aluminum, copper or nickel; agro-based, like corn, cotton, or wheat; soft, like coffee, cocoa or…

ANNUITIES

ANNUITIES


This is a contract between the investor and an insurance company whereby the investor makes a payment or a series of payments, and the insurance company pays it back either in a one-off lump sum or a series of payments. There are three different types of annuities: fixed annuities, where the insurer offers a minimum rate of interest and a fixed amount of periodical payments; variable annuities, where the insurance company allows you to direct your payments into different investment options…

REAL ESTATE

REAL ESTATE


Quite simply, this is when an investor invests in realty property, either commercial or residential, thus adding good old fashioned bricks & mortar to their investment portfolio. It offers very limited liquidity and it is also highly capital intensive (although you can ease that burden through mortgage leverage), as well as being highly cash flow dependent; it can be a risky wealth management asset if the investor goes into negative cash flow for a period of time which is not sustainable. It is…

PERSONAL FINANCE

PERSONAL FINANCE


There are various assets which can be classified as personal finance, from Individual Retirement Arrangements, which allows an investor to save for retirement with tax-free growth or on a tax-deferred basis, to 401’s, which are employer-sponsored retirement plans, to home ownership or savings accounts. Usually pretty easy to understand for the novice investor with limited experience in wealth management but certainly not an asset to include in your investment portfolio which is going to make…

FOREX

FOREX


The Foreign Exchange market (Forex, FX, or Currency Market) is a global-centralized market where currencies are traded, and it’s the largest, and most liquid, financial market in the world in terms of volume of trading. It is split between the spot market, by far the most popular and where currencies are bought or sold according to the current market price, the forwards market, where prices are prearranged for a future date between two parties, and the futures, where currencies are bought or…

STOCKS/EQUITIES

This is when you invest in a company’s shares – making a percentage of any profit that the company makes and having voting rights at general meetings and thus a say at how the company is run (usually restricted to electing the board of directors at the annual general meeting) – usually in the hope that you can sell them at a higher price at a future date. In wealth management, stocks offer the best opportunity for great profit, especially in bull markets. Also known as shares or equities, they’re the easiest to follow for the novice investor just starting to build an investment portfolio, and you can spot changes in price on a day-by-day basis so it’s hard to get massively caught out.

BONDS

This is the less ‘sexy’ cousin of stocks in an investment portfolio. It’s when you invest by effectively loaning money to a corporation or the government, and thus buying a debt that needs to be repaid. That entity will then pay you back over a set period of time at a fixed interest rate. Investing in bonds is usually safer than stocks but offer lower yields so they are the safer means in wealth management. A company will usually issue bonds when it needs to raise money for future investments.

CASH EQUIVALENTS

These are investment securities where you invest your money in, effectively, different types of savings accounts, and then receive a yield in terms of an interest rate; they are short-term and highly liquid, with high credit quality, and they are usually low risk but low return. They include government treasury bills, corporate commercial papers and money market instruments. A Certificate of Deposit note (CD) is a type of cash equivalent from a bank where you put your money into a savings account with a higher interest rate than other savings accounts but where you are committed to leaving the money in there for a set amount of time. A safe and steady asset to include in your investment portfolio, representing very tentative wealth management.

ALTERNATIVES

OPTIONS

These are extremely versatile and can be used in many different ways in your wealth management, and can be speculative and high risk, or conservative and risk reducing. They are financial derivatives where one party (writer) sells a contract to another party (holder) which offers the buyer (holder) the right, without the obligation, to sell a specific asset at an agreed-upon price (called the ‘strike price’) on a specific date (called the ‘exercise date’) or during a specific period of time. So, the writer will sell in the assumption that the share market price will drop relative to the strike price, thus making the profit on the difference between the two prices, while the buyer/holder will assume the opposite, which will mean that they can buy at a lower price than current market value and sell them on at the market value. Options are usually volatile and speculative and not ideally suited to the novice investor just starting to build an investment portfolio.

COMMODITIES

These refer to raw materials or primary agricultural products, they are quite often used as inputs in the production of other goods or services, and, while they may differ slightly in quality across different markets, they are essentially uniform across different producers. They are further broken down to different classes: precious metals, like gold, silver, or platinum; non-precious metals, like aluminum, copper or nickel; agro-based, like corn, cotton, or wheat; soft, like coffee, cocoa or sugar; energy, like oil, gas, or gasoline; and livestock, like cattle or pork bellies. This market is one of the oldest in human history, and can be viewed as wealth management at its purest, and it is split between Over The Counter (OTC), where the buyers tend to be wholesalers or refiners and the trade is delivery-based, and Exchange Traded, whereby the investor focuses on a single commodity and holds it in storage, or may invest in futures contracts whereby they agree to sell at a prearranged price in the future. It can all be pretty volatile and investors are generally advised to allocate no more than 10% of their investment portfolio to commodities.

ANNUITIES

This is a contract between the investor and an insurance company whereby the investor makes a payment or a series of payments, and the insurance company pays it back either in a one-off lump sum or a series of payments. There are three different types of annuities: fixed annuities, where the insurer offers a minimum rate of interest and a fixed amount of periodical payments; variable annuities, where the insurance company allows you to direct your payments into different investment options which will affect your eventual payout; and indexed annuities, where the insurance company will credit you with a return which is based on a stock market index. These insurance-cum-investment products come with steep fees and often confusing regulations which are presented in obtuse contracts. Not recommended for a novice investor just starting out in wealth management and trying to build an investment portfolio.

REAL ESTATE

Quite simply, this is when an investor invests in realty property, either commercial or residential, thus adding good old fashioned bricks & mortar to their investment portfolio. It offers very limited liquidity and it is also highly capital intensive (although you can ease that burden through mortgage leverage), as well as being highly cash flow dependent; it can be a risky wealth management asset if the investor goes into negative cash flow for a period of time which is not sustainable. It is usually part of a long-term strategy relying on inflation and interest rates. It is stable for novice investors but with low liquidity it means that a lot of your cash is tied up in your investment.

PERSONAL FINANCE

There are various assets which can be classified as personal finance, from Individual Retirement Arrangements, which allows an investor to save for retirement with tax-free growth or on a tax-deferred basis, to 401’s, which are employer-sponsored retirement plans, to home ownership or savings accounts. Usually pretty easy to understand for the novice investor with limited experience in wealth management but certainly not an asset to include in your investment portfolio which is going to make you rich anytime soon. Safe.

FOREX

The Foreign Exchange market (Forex, FX, or Currency Market) is a global-centralized market where currencies are traded, and it’s the largest, and most liquid, financial market in the world in terms of volume of trading. It is split between the spot market, by far the most popular and where currencies are bought or sold according to the current market price, the forwards market, where prices are prearranged for a future date between two parties, and the futures, where currencies are bought or sold based upon a standard size and settlement date on public commodities markets. Can be very volatile when you start dealing with currencies in emerging markets, and there are so many options that novice investors can sometimes get in over their heads. This is seriously convoluted wealth management and novice investors should think twice before including it in their investment portfolio.

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