Asset classes are a bunch of securities that have almost the same characteristics within a market and are governed by one set of rules and regulation. There are three major asset classes which include:

• Equities, which also include stocks
• Fixed income, which also includes bonds
• Cash equivalents, which also include money market instruments

In some cases, asset class mix also considers cryptocurrencies, real estate or other commodities.

So what to consider when you are analyzing different asset classes?

–Risk analysis of each asset class:

Well, while investing, the key element of significance is to choose the right asset class before you touch risk analysis. The right asset group needs to be determined beforehand in order to explore through the risks in a prepared manner and steady approach. However, comparing one asset class with another might be a bad idea. Because every asset class comes with a certain set of risks that are completely unique to it.

All these asset groups are considerably different from each other. They represent specific methods of approach which ultimately result in various useful or harmful outcomes depending upon the situation. Furthermore, they are specified for a certain criterion which cannot be correlated with other groups. The mere rules and regulations which restrict these different groups are also specified with the kind of investment individual proceeds with.

–What are the general characteristics of asset class used for?

The general characteristics of the groups shall not be associated with the specific characters of a group. Let us consider the example of bonds and stocks; bonds seem to carry the upper hand if compared. It is considered senior to stocks in the financial market. Why you may ask? If a company finds its way to be obstructed and going straight into the bankruptcy tunnel due to the crisis, it is determined that the bondholders will be paid before the preferred shareholders who will be paid before the common shareholders.

But, not all bonds reciprocate the same message, there exists several bonds with different purposes and aimed for various objectives. Carrying different details, they are not brought to the platform equally. In relation to these specifications regarding bonds, they are issued to and associated with various bondholders too. Hence, the comparison between stocks and bonds in hopes to obtain a similar mindset or to acquire the same result would not give us any beneficial details.

Below are some of the asset class characteristics that are considered by financial experts while monitoring the asset classes:

• Returns of Major Asset Classes
• Risk of Major Asset Classes
• Risk-Return Tradeoff
• Risk Premium
• Skewness
• Kurtosis
• Liquidity

This is why it rather than comparing two different asset classes, it is recommended to rather compare pros and cons of every specific asset class.