Posted by Nancy Phillips on Sun, Sep 07, 2014

This guest post is brought to you by the team at DealMarket. As you learn about investing, be prepared to ask questions, both of the people explaining the investment to you, and also to other experienced investors who have learned through experience what works and what doesn't. Also be sure to understand all the fees you will be paying, as they may negate the return on the investment if you aren't fully aware. Enjoy the article!

Whether you?re just starting to learn about investing or you are thinking about a career in the finance industry, there is much to consider in terms of where to focus.  A good place to start is to understand the different asset classes available, as some investment careers might focus on a very specific sector while others might take a more general approach.

Understanding Asset Classes

Investopedia defines an asset class as ?A group of securities that exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same laws and regulations.?

When starting out in the investment sector, it is better to stick to the narrow definition of asset classes.  This is because many investors and investment firms might consider other things as asset classes.  Commodities and real estate are the two types of investments typically considered to be asset classes in addition, but others may be added depending on the outlook of the investor and the firm.

For now, let us focus on the three primary asset classes.

Equities

Equities are also known as stocks.  In terms of asset classes, equities typically means the owning shares in businesses that are publicly held and traded.  Such businesses would be those trading on the NASDAQ in New York, or the FTSE in London, for example.

This asset class can also refer to private equity, or private stocks.  The difference is simple; this refers to holding shares in privately held companies, i.e. any that aren?t traded on a public stock exchange.

Equities, both public and privately held, have proven over time to be the best performing asset class.  While equities can be volatile in the short term, history has shown that investors that hold their nerve and stick with these investments in the long term usually get their rewards.  The nature of equities means that an investor or firm may see a return lower than the capital invested in the first place.

Owing to the nature of equities, this is a good sector of the industry for analytically skilled individuals, and those that can interpret often complex data to make decisive decisions.

Fixed Income

Fixed income assets, which are also commonly known as bond investments, offer more stability than equities markets.  While they are less risky, lower risk in the finance world always means lower rates of return.  The value of bond investments are closely tied to interest and inflation rates, so in periods when these are low investors will typically need to make several investments in order to generate an attractive return.

The easiest way to view and understand fixed income assets is to think of it like a fixed term bank account, where savers commit a sum of money for a fixed term at a certain rate of interest.

Working with fixed income assets is ideal for anyone looking for a finance career without taking huge amounts of risk with people?s money, but it is also rewarding investigating and discovering the best fixed income deals on the market and providing additional value to clients this way.

Money Market

Money market investments, or cash equivalents as they are typically known, are short-term investments.  These offer less risk than equities and fixed income, but their short-term nature means growth opportunities are usually severely limited.

Where Should You Focus?

The majority of investors and investment firms will look to have a diverse portfolio of asset classes at their disposal.  This is often a strategy aimed at minimising risk.  For example, losses on equities can often be balanced by money market and fixed income gains.  However, most finance professionals will look at this technique as a means of maximising gains, and it is recommended that anyone looking to enter the finance sector do the same.

Those looking to enter the financial industry will have options in terms of working in businesses that focus on specific asset classes, but for a better rounded appreciation of the sector, it is worth building knowledge of them all, as well as the other areas where firms may invest, such as in commodities and real estate.