What Is an Asset Class and Why Does It Matter on Cadence?

In Short: An asset class is a group of securities that exhibit similar characteristics, behaves similarly in the marketplace, and are subject to the same laws and regulations. In the public markets, there are three main asset classes: equities (stocks), bonds, and money market instruments. In alternative investing, asset classes can be expansive, including real estate, commodities, cryptocurrencies, etc.

When you invest in anything, you’re investing in an asset. Assets are anything with value that can, at one point, be converted into cash. Stocks, bonds, and even the investments on Cadence are all assets.

Yet each asset belongs to an asset class. Asset classes are types of assets that behave similarly and share similar characteristics.

Across markets, there are four main types of asset classes: equities, fixed income, cash (and cash equivelants), and alternative investments. Let’s learn about each asset class and how it ultimately applies to your investments — including those made on Cadence.

Equities

Equities are stocks, plain and simple. This asset class is typically highly liquid, meaning it can be easily converted to cash. Penny stocks, international stocks, ETFs, and some other publicly traded investment vehicles also fall under this asset class.

Fixed Income

This asset class usually refers to bond investments. These investments are generally also liquid, and have a set rate of interest. They are often more stable than stocks, but unlike stocks — whose value fluctuates based on market supply and demand — bond values can fluctuate based on interest and inflation rates. Money market accounts also fall under this particular asset class.

Cash and Cash Equivalent

This asset class includes everything from cash, foreign currencies (often used in the foreign exchange market), and even cryptocurrencies (which might not always be as liquid as cash). Cash is the most liquid asset as it can easily convert into any other asset class listed here.

Alternative Assets

This vaguely named asset class is the umbrella class for anything that does not fit in the other three categories. For instance, real estate investing is an alternative asset, as is venture capital.

These assets are an alternative to traditional investing and straight-up cash, allowing investors to invest in things that might not always be correlated with equities or fixed income markets.

Where Does Cadence Fit Into This?

Assets on Cadence are alternative investments. Even though collateralized debt investments have a set rate of interest and can be converted at the end of the term of a note to cash, investments on Cadence operate separately from the public bond market and its rates.

Some investors prefer to add this type of asset to their portfolio, as it is a way to mitigate risk in equity and fixed income markets. After all, if stocks go up or down, it does not have a direct impact on alternative investments like those on Cadence.

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