Final answer:
Asset classes such as stocks, bonds, mutual funds, real estate, and commodities serve different purposes in an investment portfolio, offering various benefits and characteristics.
Step-by-step explanation:
Asset classes refer to different categories of financial assets that investors can choose to invest in. Some common asset classes include stocks, bonds, mutual funds, real estate, and commodities. The purpose of having a diverse portfolio is to spread risk and potentially maximize returns. Each asset class has its own characteristics and benefits, and combining multiple asset classes can help investors achieve their investment goals.
Stocks represent ownership in a company and offer the potential for capital appreciation and dividends. Bonds are debt securities issued by governments or corporations, and they pay interest to bondholders. Mutual funds pool money from multiple investors to invest in a diversified portfolio of stocks, bonds, or other assets. Real estate can provide income through rental payments and potential value appreciation. Commodities such as gold, oil, or agricultural products can be used as a hedge against inflation or as a speculative investment.