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What are the different asset classes you need to know? Stocks, ETFs, bond and REITs

01 Aug 2022

Some of the asset classes to consider when building a diversified portfolio include stocks, ETFs, bonds and REITs.

Different asset classes stocks ETFs bonds REITs

What you'll learn:

  • What are stocks?
  • What are ETFs?
  • What are bonds?
  • What are REITs?

TL;DR

  • When you buy a stock, you are essentially owning a stake in the company. For publicly listed companies, the shares are traded on stock exchanges. 
  • An ETF is an investment fund that can be bought on a stock exchange. 
  • A bond is a form of loan.  When you buy a bond you are essentially lending money to an entity, typically a government or corporation. 
  • A REIT is essentially a company that manages income-producing real estate. 

#1 - Stocks

So you’re ready to open your own brokerage account on an investment platform, but what exactly can you invest in? You might have considered investing in stocks, also known as equities.

When you buy a stock, you are essentially owning a stake in the company. For publicly listed companies, the shares are traded on stock exchanges. 

This includes companies from different sectors: energy, consumer staples, consumer discretionary, financial services, technology, healthcare, etc. 

The process of choosing which stocks to buy will require market research to make forecasts based on a number of factors such as the company’s financial health, competition, and overall business model. 

Naturally, this will require some time and effort. 

But if you don’t want to do individual stock picking, you can always opt to invest in an exchange-traded fund (ETF).

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#2 - ETFs

An ETF is an investment fund that can be bought on a stock exchange. 

Like other types of funds, ETFs pool together different investments or track the performance of a stock index like the S&P500. 

Given the nature of ETFs, they are generally able to provide investors with diversification, which helps balance risk.

Although the verdict is not clear on whether individual stock picking or ETF investing is better, one thing is certain: investing in ETFs with a broad exposure will allow you to spend less time researching and reading up on developments in the global markets. 

If you prefer a set-and-forget approach, you should consider adding some ETFs to your portfolio.

See also: What you need to know about Singapore ETFs

#3 - Bonds

Apart from equities, some investors have also considered adding fixed income instruments to their portfolios. 

A bond is a form of loan, similar to an IOU. 

When you buy a bond you are essentially lending money to an entity, typically a government or corporation. 

In return, you get paid interest as well as your initial investment amount when the term of the loan ends. 

However, it is worth noting that it is generally harder to buy corporate bonds, unlike stocks which are easily accessible on online brokerage platforms. 

Also, government bonds such as the Singapore Government Securities bonds (SGS) which are perceived to have lower risks also typically offer a lower rate of return.

#4 - REITs

Another way to diversify your investments beyond equities is through real estate investment trusts (REITs). 

For investors looking for an income-earning asset, REITs backed by cash flow from property provide a way to get investment exposure to property.

A REIT is essentially a company that manages income-producing real estate. REITs give all individuals the opportunity to benefit from investing in real estate assets.

In the same way that shareholders benefit from owning stocks in a corporation, the stockholders of REIT earn a share of the income produced from real estate investment without actually having to buy physical property and manage the property themselves.

In the same way that shareholders benefit from owning stocks in a corporation, the stockholders of REIT earn a share of the income produced from real estate investment without actually having to buy physical property and manage the property themselves.

Take the next step:

  1. Find out more about stocks by reading Beansprout's guide to stock investing here
  2. Find out more about ETFs by reading Beansprout's guide to ETFs here