Passive investing part 4: asset classes

This is the fourth post in my series of articles focused on passive investing for Europe based investors. Even though I will follow the topics as indicated in the part 1, please feel free to ask or share any related thoughts in the comments below. This post will prepare us for discussion of historical returns by describing the main asset classes.

Asset classes

There are roughly 4 core “asset classes” (inspired by Swensen’s Unconventional Success although as most books this one is aimed at US based investors) to consider: developed market equities, emerging market equities, government bonds, corporate bonds and real estate.

I will very likely write more in detail on each of the asset classes but for now I will just give a high level description of each of them.

Developed market equities mean portfolio of shares in companies that tends to be biased towards the US, Europe and Japan. In general, these countries have a long tradition of relatively good business practices with strong protection of private ownership.

Emerging market equities consists of portfolio of shares in companies outside of developed markets, in practice having a strong bias towards China and other major emerging Asian economies. As these economies are still catching up with developed markets, they should, in theory, experience higher growth. However, this does not necessarily mean higher returns for equities.

Government and corporate bonds ETFs effectively earn their return by lending to governments or companies, varying in risk as well as periods over which money is lent.

Real estate is an asset in which many people are invested through owning the house they live in or even by renting them out to produce additional income.

After this primer on asset classes, we are now ready to discuss historical returns and risk.

Do you have questions? Please ask in the comments below!

Published by everydayinvesting

Amsterdam based. There will definitely be a bias towards topics relevant to my work. I'm interested in investing, markets, economics, politics, history but also machine learning, statistics and how (whether) all these can be combined. I have questions and let me know if you have answers! Always happy to discuss any of the below and more. - can machine learning be applied to investing? - what's the future of active investment management? - what's the future of passive investment management? - where's the best trade now?

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