The Banking Executive Magazine - January 2023 Issue

GLOBAL MARKETS ASSETS CLASSES Global markets asset classes are groups of similar investment vehi- cles. Different classes, or types, of investment assets, such as fixed-in- come investments, are grouped to- gether based on having a similar financial structure. They are typically traded in the same financial markets and subject to the same rules and regulations. Many market analysts and financial advisors divide assets into the following five categories: 1) Stocks or equities: Equities are shares of ownership is- sued by publicly-traded companies. They are traded on stock exchanges such as the New York Stock Ex- change NYSE or NASDAQ. Investors can potentially profit from equities either through a rise in the share price or by receiving dividends. The asset class of equities is often subdi- vided by market capitalization into small-cap, mid-cap, and large-cap stocks. 2) Bonds or other fixed-income investments: Fixed-income investments are invest- ments in debt securities that pay a rate of return in the form of interest. Such investments are generally con- sidered less risky than investing in equities or other asset classes. 3) Cash or cash equivalents, such as money market funds: The primary advantage of cash or cash equivalent investments is their liquidity. Money held in the form of cash or cash equivalents can be eas- ily accessed at any time. 4) Real estate or other tangible assets: Real estate and other physical assets are considered an asset class that of- fers protection against inflation. The tangible nature of such assets also leads to them being considered as more of a “real” asset. In that respect, they differ from assets that exist only in the form of financial instruments, such as derivatives. 5) Forex, futures and other derivatives: This category includes futures con- tracts, spot and forward foreign ex- change, options, and an expanding array of financial derivatives. Deriv- atives are financial instruments that are based on, or derived from, an un- derlying asset. For example, stock options are a derivative of stocks. Assets may also be categorized by lo- cation. Market analysts often view in- vestments in domestic securities, foreign investments, and investments in emerging markets as different cat- egories of assets. Other asset classes include col- lectibles, hedge funds or private equity investments, and cryptocur- rencies such as Bitcoin. These asset classes are sometimes classified to- gether under the heading of “alterna- Global Markets Outlook 2023 the BANKING EXECUTIVE 36 ISSUE 169 JANUARY 2023