The range of investment options is so broad that it might be overwhelming for a new person exploring their long- and short-term portfolio needs. Historically, the asset classes were equities, bonds, and cash, however, the present-day list can be expanded with alternatives (commodities, venture capital, direct private equity, and real estate). There is nothing bad about being lost along the way as the classifications can be flexible due to the breadth of the instruments’ universe. This article will talk about various categories of financial instruments, while future ones will delve deeper into uncovering more specific about the asset classes.

Coming from the high-level division, we can split the asset classes into two major categories: public and private. The private instruments have included the private debt and equity as major asset classes. The direct private investments also include real estate, and such investments can have both equity and debt like features depending on the investment types. The publicly traded instruments are traded on the public exchanges. The first such exchange was found in Amsterdam in 1611 and its creation was driven by the wish of East India Company to issue the shares. I see that as a powerful reminder to the fact that there are two sides to every market and at the time of the initial shares issue; the share issuing company is the interested side.

As the humanity developed, there came a possibility for an easier exchange and flow of the investments between the investors. The modern technology allows for the trade of fraction of shares, while just 30 years ago the prices have had no decimals and fractions were used to represent the decimals in pricing (i.e., $30 and 1/8 standing for $30.125).

Equities, though, are only one of the few instruments that are available for public investors. Other typical publicly traded instruments are bonds, ETFs, REITs, and futures.

In this article, I would also mention an important term in finance – liquidity.

Liquidity stands for the availability of liquid assets to a market or company.

Essentially, the more instruments there are for an offer with supply matching it, the easier it is to conclude a trade. As we go from the private markets to public, the number of investors increases and hence there is more technological capability for the exchange of those instruments. The growth in liquidity leads to creation of more sophisticated instruments that allow to change the risks and returns of your investments – derivatives.

This article is a high-level introduction into the topic and in the future articles we are going to explore the asset classes and instruments in more details.

Please refer to the following posts for more details:

• What are equities?
• What are bonds?
• What are derivatives?
• What are financial funds?
• What are structured products?

Please note, none of the information on this blog represents the opinion of my employer and all information does not represent a financial advice.