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A bedrock of investing, asset classes are groupings of investments that have similar financial characteristics. Each asset class carries its own set of risks and rewards. There will usually be little correlation between asset classes; when a specific asset class is performing well, others may lag or underperform. Owning investments from different asset classes, known as diversification, can help reduce the overall volatility experienced by a portfolio. Investors’ investment goals, like their personal circumstances, differ and so asset class weightings will vary.
If you own shares in a publicly listed company, you own a small part of that company. Listed on stock markets, share prices move up and down depending on investor supply and demand. Investors can make money from their shares mainly in two ways:
when the company pays out some of its profits to shareholders via a dividend, either in the form of cash, additional shares, or both
by selling their holdings on the stock markets for more than they paid.
An attractive feature of many shares is that they are easy to buy and sell (‘liquid’). However, they can also be volatile, meaning the price can quickly move higher or lower. Examples of this might include a company being taken over at a premium or sold down if it reports disappointing results. Among traditional assets, shares have historically delivered the best long term investment returns.
Low liquidity risk
Affected by market risks
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