Understanding different asset classes

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Here we unpack each of the leading types of investments, and explain how to choose the asset classes that are right for you.

Broadly speaking, investments can fall into one of two categories - 'defensive' or 'growth' assets.  One will help you to grow your wealth, the other is more apt at ensuring you don't lose it.

Having a clear idea of what you are hoping to achieve from your investments, the difference between the two categories, helps you form a framework to build the portfolio that suits your goals and needs. Having a clear idea of the difference between the two helps you form a framework to build the portfolio that suits your goals and needs.

understanding different asset classes

Defensive investments

Defensive investments have two very appealing qualities. They come with a lower level of risk, so there is (generally speaking) less chance you could lose money, and they typically exist to act as a source of regular income.

These qualities make defensive assets popular among retirees and others, who rely on their investments to generate income. More broadly though, defensive assets can be a valuable addition to any portfolio. Even investors looking for high levels of growth from their portfolio maintain some exposure to defensive, income focused assets.

What do defensive investments look like? As Table 1 shows, we're chiefly talking about cash and fixed interest assets. Even across these two categories, investors have plenty to choose from.

When it comes to fixed interest asset classes, investors may be unsure where to start. Investments like government and corporate bonds are often seen as the mainstay of large institutional investors but can be difficult for everyday investors to access.

La Trobe Financial's portfolio investment options can play an important role for investors seeking low-volatility, monthly income.  Backed by pools of first registered, predominantly residential mortgages and with an easy-to-understand structure, these accounts offer variable income which has tended to move alongside inflation and other market interest rates - a real benefit in this current environment.  With minimum investments starting at just $10 this is also accessible for a wide range of investors.

Unlike savings accounts, fixed interest asset class investments do not come with a government guarantee. The trade-off for this is the potential to earn higher returns.

Growth investments

Growth assets are so-named because the capital value of your investment can increase over time. This capital growth can be in addition to ongoing returns.

Some leading types of growth assets in Australia include property and shares. Both are investments that many people will be familiar with. However, it is important to be clear that capital growth is not guaranteed.

Just as shares and property can generate capital gains, they can also fall in value - sometimes dramatically, making these a higher risk investment. This brings an increased risk of investors losing their money.  Here too, the compensation for more risk is the possibility to earn higher returns over time.

Which investment is right for you?

When you understand how investments work - the pros and cons, the risks involved, and how it helps you achieve your investment goals - making an informed choice about where to invest your money can be less stressful.

Importantly, quality assets don't have to be complicated.

Simple, straightforward investments offered by reputable managers who have stood the test of time, can have a well-deserved place in every portfolio.

La Trobe Financial Asset Management Limited ACN 007 332 363 Australian Financial Services Licence 222213 Australian Credit Licence 222213. Financial product advice in this article is general only and does not consider your personal circumstances.  Consider the PDS and TMDs on La Trobe Financial's website latrobefinancial.com.au before investing.

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Chris Paton is chief investment officer at La Trobe Financial. He has more than 14 years' experience in banking, asset management and financial services and has held a number of senior roles since joining the business in 2017. Prior to joining La Trobe Financial, Chris worked in law specialising in the banking and finance sector. He holds Bachelors in Commerce (Distinction) and Law (Hons).