What is an asset class?

Investment markets and the economy are in a constant state of change; that’s why you want a diversified retirement portfolio. By combining investments that each react differently to market changes, the strength of one investment will help balance any weakness in another. This reduces your overall risk. You can diversify the investments in your group retirement plan by choosing the asset classes that are right for you.

Asset classes

An asset class is a group, or class, of similar types of investments, based on what they invest in or how they earn a return.

Asset allocation - diversification in a single fund. This type of fund consists of a diversified mix of investments and fund managers.

Cash and equivalents - consist of short-term, interest-bearing investments, such as money market funds, with investments that mature in less than one year. This asset class isn't usually used for long-term investing.

Fixed income - consists of income-bearing investments, such as bonds or mortgages. Corporations and governments issue bonds to get money they need today, knowing they'll have to pay the money back with interest. In effect, you lend money to the seller by buying a bond. A mortgage fund invests in mortgages and earns money on the interest paid on those mortgages.

Balanced - a diversified mix of investments. They can be made up of a combination of equities, bonds, mortgages and cash-equivalent investments.

Equity asset classes

These funds are made up of many different stocks in companies that are traded on stock markets, both foreign and domestic.

Canadian equity - mostly stocks of Canadian corporations.

Foreign equity - mostly stocks of non-Canadian corporations.

Special equity - industry or sector-specific holdings, for example, real estate, precious metals, or natural resources.

Every retirement plan is unique. It’s important you choose the investment fund or combination of funds best suited to you.