Asset TypesIn financial circles, it is very unusual to see information that relates to alternative asset types and strategic investment planning. Objectivity is often scarce when profits are usually made by the selling of stocks and shares, bonds and property. Since I have no axe to grind, I thought I'd write this month about strategic planning and the different types of asset class. Issues like this relate mainly to the accumulation and/or protection of wealth. The theory goes something like this: if you have several different pots simmering away, you are unlikely to go without dinner. Most people will tend to specialise or concentrate their investments. Either through knowledge or apathy, you stick to what you know. This concentration can produce amazing results or nothing, it just depends on where you concentrated. Essentially, most asset types can be categorised into one of four main groups. They are money, property, businesses and tangibles. Money, our medium of exchange, includes cash, bank deposits, corporate or government loans (bonds) and CD's. Property might be land, commercial or residential real estate. Businesses may be wholly or partially owned (via partnerships) or shares in publicly quoted companies (this also includes unit trusts, mutual funds, with profits bonds and investment trusts). Lastly, tangibles are useful goods that might include gold, silver, art or precious stones. When I speak to people, I tend to find that they are very commited to just one or two asset classes. For example, they might save heavily each month from their salary, but put it all in the bank on deposit with no real goal. Others own a residential property and then two, three or more properties which are mortgaged and let for rental income and (hopefully) capital growth. Whilst property might often provide reliable returns, it is an illiquid asset (it is hard to realise it for cash in a hurry) and is essentially an active business with the potential for headaches and problems. Either people don't mention to me that they own tangible assets, or very few people buy things like gold coins, diamonds, stamps or works of art with investment in mind. Storage can be an issue, of course. Leaving the diamonds on the coffee table is not a way to secure an investment. That said, with many of the worlds governments pursuing a 'soft' monetary policy (spending and borrowing too much) hard assets hold a certain appeal. Businesses are what I usually would write about so I do not intend to comment greatly here. Different industries and companies (or funds) provide higher potential risks and rewards and a portfolio can be tailored to individual requirements. The issue really is how are your finances arranged and are all of your eggs in the same basket? If they are, that may not be a problem, unless that basket is cash in the bank, or worse, in the sock drawer. * This was first published in February 2004 *
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