Investment categories — or asset classes — are the building blocks of your investment strategy.
Common asset classes include:
- Stock investments give you an ownership interest in the company issuing the stock.
- If the company does well, your investment may also do well. If not, you could lose some (or all) of your money.
- Stocks may offer higher potential returns over time than most other investments, but they have greater potential for loss because of market risk.
- Historically, stock returns have outpaced inflation.
- Bonds typically pay a set income over a set term. At the end of the term, the amount you've invested is returned to you.
- Bonds offer a steady income stream.
- If a bond issuer has financial difficulties and defaults on its bonds, you may not receive scheduled interest payments or your initial investment.
- Historically, bonds have offered less volatile price fluctuations than stock investments. But bond prices do move up and down, largely in reaction to changes in the interest rate. So if you invest in bond mutual funds — or if you purchase individual bonds but don't hold them to maturity — you may lose some of the amount you invested.
- Like bond investments, cash alternatives generally pay a defined income over a set amount of time, with your original investment returned at the end of that time.
- The income may be fixed or variable.
- The advantage of cash alternatives is that many of these investments are backed by the US government or insured by the Federal Deposit Insurance Corporation (FDIC), so return of your principal is guaranteed.
- The major disadvantage is that these investments may not produce a return greater than the inflation rate.
- Investing in real estate involves the purchase, ownership, management, rental and/or sale of real property for profit.
- Real estate investments can include any type of real property from land to homes and apartments to commercial buildings.
- Compared with stocks, bonds and cash alternatives, direct real estate investments have limited liquidity because you may not be able to sell your properties easily or at a desirable price.
- Investing directly in real estate can be a risky investment if you don't have sufficient time and expertise.
- Commodities are basic goods — agricultural products, metals, petroleum, natural gas and certain financial instruments, such as foreign currencies — that are traded on a commodity exchange.
- Commodities generally have high volatility and are usually considered riskier than other equity investments, such as stocks.
Please note that not all these asset classes may be available in all retirement plans.
An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corp. or any other government agency and is not a deposit or other obligation of, or guaranteed by, a depository institution. Although a money market fund seeks to preserve the value of your investment at $1 per share, it is possible to lose money by investing in the fund.
