Asset classes - what the heck are they and do they matter?

[Zevitevitchofcwsmas]

Can anyone tell me what they are and how they matter? In simple accessible language please
I have 7 grand to invest in stocks and shares isa and I have little idea of what to invest in.

I've read several large platforms website and funds and it seems fundsmith, and lindsell train area the go toos.

And perhaps some other ones round the world with more global stuff?


Why do people invest in bonds as well!

What would be a good portfolio thanks.

[YeOldeTrout]

What level of risk is tolerable to you? Could you stomach 10% chance of losing all £7k if there was a 10% chance you would double your money & 80% chance of breaking even? Those are the trade-offs.

I think asset classes just means 'diversify' your risk exposure, but really, you need to know what risks you find tolerable, as first priority.

[Want2bSupermum]

Best way to think about asset classes is to think about the risk of losing your money.

High risk of losing your money means a high rate of return and likewise, a low risk of losing your money means a low rate of return.

So you want a mix, for £7k best option is probably an ETF tracking an index as much lower fees and relatively moderate risk. Just be aware that we are at the top of the market so you might want to invest the funds in equal installments over a 12 month period rather than all at once.

[Chewbecca]

They are just different types of investments, grouped by how they 'behave'.

So, equities are one class. You probably think if them as stocks and shares. Effectively you are buying a little bit of a company and whether the value of that goes up or down depends on how well the company performs.

Cash (&cash equivalents) is another class.

Bonds (& fixed income) are another class - these might pay a fixed amount, say 3% a year and might be guaranteed (by govt) so you know exactly what you're getting.

Stocks and shares are riskier than others but also give the most opportunity to grow your money by more than inflation. Some equities are much riskier than others.

You don't necessarily need to know what asset classes your £ is invested in, you do need to know how risky your investment is and if that is ok for you.

[Zevitevitchofcwsmas]

Thank you so much 💐. I think I may have called the the wrong thing though.

Share classes eg class a and d is what I meant but I have gained lots of knowledge from the above

When people say exposure to risk I'm looking at 5 to 10 years hopefully minium.

I guess half low risk and half high risk.

But if I invested in lindsell train fund and let's say I put 3 grand in. I would own 3 grand of the funds shares? Is that right...

If so.. Let's say the economy tanked after brexit and my 3 grand became £500 worth... I would still own a the shares wouldn't I? Ie... There's every chance the fund would go up again and I could get 3 grand back and more?

Eg if I owned 40 m and s shares... Even if the shares tank one day... I still own a the shares and in a years time they could be worth alot more... But the shares are tangible they exist and belong to me...

[YeOldeTrout]

There's every chance the fund would go up again and I could get 3 grand back and more?

That's what we thought when we invested in Marconi (sigh). IIRC, shares sharply rose from £5 we bought at, to £10 each, then swiftly fell to < 5p each. I guess we lost (?) £2k on them.

[OKhitmewithit]

Ye Olde Trout that’s different. Direct shares and funds are two different things

So you want a mix, for £7k best option is probably an ETF tracking an index as much lower fees and relatively moderate risk

Er, I think you’ll find ETF’s structurally can be FAR higher risk with synthetics and other non direct ownership.

OP be wary of advice online.

A vanilla Global Equity Tracker such as Vanguard Lifestrategy (that actually buys the assets classes) would be better for most people.

[OKhitmewithit]

Including mine