Asset Class

A specific category of assets or investments, such as stocks, bonds, cash, international securities and real estate. Assets within the same class generally exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same laws and regulations.

Asset classes exist to provide structure to the vast array of financial instruments available in today's market. Although no two stocks are exactly the same (and some differ quite significantly from each other in terms of volatility, dividend yield, etc), most equity shares are sufficiently similar to each other, and are different enough from other financial instruments that they are reasonably grouped together into the same asset class.

Assets are also grouped together based on the characteristics of their underlying companies. For example, a micro-cap and mega-cap stock can both belong to the same industry sector, while two mid-cap stocks can be involved in entirely different business sectors.

Investors often build portfolios which make use of several asset classes, changing the proportional weighting of each asset class to suit their changing needs.