Investments are falling into one of two following main categories:
The distinction between the two rests with whether or not the asset in question
can be physically touched.
Real assets, also known as tangible assets, may be broken down into three groups:
Commodities, such as gold and silver and
Collectibles, like art, stamps, coins and etc.
In part due to their finite supply or unique characteristics,
real assets normally show the best appreciation when inflation is high.
Financial assets, sometimes referred to as intangibles, are separated into three areas:
Each category has its own risk and reward characteristics.
A stock represents an ownership stake in a company
and provides the stockholder with a slice of the company's profits.
A bond reflects a loan made by an investor to either a government or a corporation.
To compensate the investor for making a loan,
the borrower agrees to pay back the principal sum of the loan plus interest payments on the principal.
The third component of the financial asset menu is cash,
though this does not equate with the paper stuff in your pocket.
In the investment world, cash is lingo for an asset that is virtually riskfree,
such as a bank certificate of deposit.
Over the course of a lifetime of investments,
each type of financial asset will have its place in your portfolio.
Stocks are used to build wealth due to their capital appreciation potential,
while bonds offer income, and cash is valued for its safe-haven characteristics.
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