Some Investment Concepts
This site will continuously provide some basic investment concepts for you to be able to share your ideas with us. From time to time, the topics discussed here may change based on readers various interests. For the purpose of improving this site, we welcome our readers to actively submit feedback in regard to the content of this site via “Contact Us”.
Asset class is used to describe an investment channel where all the investments in the same class represent similar market performance, features & benefits. Three traditional asset classes are: equities/shares, fixed-income (e.g. bonds) and cash equivalents (e.g. certificate of deposit). More popularly in the modern investment field, asset class is also grouped as: equities/shares, fixed-income, cash equivalents, property and alternatives (e.g. commodities, metals, derivatives, etc). With rapid development in information technology and financial investments, the classification of asset class becomes wider and wider and it can simply refer to any investment type which has different characteristics from others.
No matter how people divide asset class, the main purpose is to distinguish the different ‘risk and return’ profile of each class so that investors can decide what investments to choose based on their risk appetite, financial goals as well as their investment time frame.
It is highly recommended that investors do some research before making investment decisions, to find out each asset class different risk/return profile and the required investment time frame.
Defensive assets are the assets which focus on generating constant and stable income with relatively low risks from the investment. Defensive assets normally refer to fixed-interest and cash equivalents types of financial products. Examples of fixed-interest assets are government bonds, corporate bonds, etc. Cash equivalents assets can be bank bills or similar securities whose maturity is normally no longer than one year.
Comparing with defensive assets, growth assets focus on generating capital gains as well as income by taking higher risks. Shares/equities, property, alternatives (e.g. commodities, metals, derivatives, etc) are generally considered as growth assets.
Asset allocation is an investment strategy which shows how investors distribute different asset class in an investment portfolio. Asset allocation represents investors’ different risk appetite, financial goals and investment time frame, etc. Two main asset allocation strategies are: strategic asset allocation and tactical asset allocation.
Diversification is the most fundamental technique investors use to reduce the risks taken in investment activities. The most popular metaphor for this technique is: ‘don’t put all your eggs in one basket’, which basically means by investing your money in various chosen assets instead of one single asset will highly reduce investment risks, i.e. the possibility of loss. Investors’ desire for different levels of diversification will directly determine their asset allocation strategies.
Property trust is a fund that invests in a portfolio of real properties for the purpose of earning income as well as capital growth. The properties being invested in can be residential properties, e.g. a block of units/apartments/townhouses, etc, or commercial properties such as industrial properties, office buildings, shopping centers, hotel/leisure, or a mix of such. Property trust provides an investment opportunity for individual investors to invest in the property market indirectly by purchasing a certain amount of “units” of the trust and share the profits amongst the unit holders.
Property trust can be listed or unlisted, that is whether or not they are listed in the stock exchange.
Australian Real Estate Investment Trusts (A-REITs)
Australian Real Estate Investment Trusts are property trusts which are listed in Australian Securities Exchange. A-REITs provide individual investors the opportunity to share the ownership and the income of a wide range of properties, especially commercial properties.
(More to come soon…)