Where can we put our savings if we want to earn a higher return than what a bank account provides?
Well, we could buy a house, a painting, some shares of Apple, or a chunk of gold. These are all examples of assets we could buy in the hopes of earning a long-term return.
Assets which are similar to each other can be grouped into categories known as asset classes. A house belongs to the “real estate” asset class. Shares of Apple belong to the asset class known as “stocks”. Gold would belong to the “precious metals” asset class.
Generations of data show us that picking the right house, or the right stock, or the right anything within a particular asset class is not a reliable long-term investment strategy. On the other hand, investing in asset classes themselves is fundamental to a reliable long-term strategy. For that reason, rather than investing in individual assets, we should generally invest in asset classes.
To illustrate that, over the past 150 years, the stock market on the whole has performed well as an investment. But at the same time, there’s almost no individual company stock that has even survived that long.
Now, where things get really interesting is when our investments are spread amongst a variety of asset classes, in order to exploit their relationships to each other. For example, stocks generally do well when bonds do poorly, and vice-versa. As we’ll see, we can use that to our advantage!
In which asset classes can the average person invest? It turns out that, today, it’s easy to invest in a surprisingly broad range of asset classes, including:
- Real estate
- Natural resources
- Precious metals
- and more…
With nothing more than a few clicks online, we can literally purchase the entire American stock market, gold or even Chinese real estate!