The assets ordinary people invest in are classified as real assets and financial assets in the capital market. Investment experts divide them into traditional investments and alternative investments. Figure 4 shows the types of them in two dimensions with both concepts.
Figure 4. Types of Investment Assets
|Real Asset||Financial Assets|
|–||Cash, Deposit, Savings, Stocks, Bonds, Mutual Funds|
|Alternative Investments||Real Estate, Metals, Energy, Agricultures||
Financial assets include cash, deposits, savings, stocks, and bonds.
They usually do not have physical substance. Professional investors classify them as traditional investments. They also include funds in which professional managers raise capital from an unspecified number of investors and invest in stocks or bonds, instead of investors.
In the recent financial markets, the size and the weight of private equity funds and hedge funds are increasing. A private equity fund refers to a fund that raises capital from a small number of specialized investors and acquires private companies or invests in venture firms. A hedge fund is a fund using various investment techniques, which is difficult for ordinary people to understand. It involves buying and selling securities at the same time, such as stocks, bonds, futures, options, and foreign currencies. Private equity and hedge funds are theoretically classified as alternative investments.
The investment assets that many people are interested in more than deposits, stocks, and bonds are real estate.
Real estate is divided into residential and commercial. Residential real estate refers to places for people to live in, such as single-family homes, villas, and apartments. Commercial real estate is property held for regular rental income, such as shopping malls, offices, warehouses, and hotels. Real estate is the most representative alternative investment people physically hold.
Gold is also one of the real assets people are familiar with. Gold is also a representative alternative investment with excellent holding value. In general, its price increases while prices of financial assets such as stocks and bonds decline. It is also famous because the value of it covers the inflation rate. From the investment-market perspective, gold is only one of the various metals. The metals with good holding value such as gold and silver are classified as precious metals, and the metals for industry formation such as iron, lead, tin, and copper are classified as industrial metals.
Commodities such as petroleum, energy, power, and masses of wheat, rice, corn, beef, and pork are also investable assets. They are all real assets with physical entities and theoretically classified as alternative investments.