WHAT TO OWN · LAYER 2
Understanding Asset Classes
The individual investor should act consistently as an investor and not as a speculator.
— Benjamin Graham
The building blocks of every investment portfolio. Learn what you can own, how each asset class works, and which options suit Australian investors.
This Page Takes: 30 minutes
Why This Matters
Before you invest a single dollar, you need to understand your options. This page breaks down the major asset classes available to Australian investors — what they are, how they work, and their role in a balanced portfolio.
What Are Asset Classes?
An asset class is a category of investment that behaves in a similar way and is subject to similar rules and regulations. Think of them as different tools in your investment toolkit — each with its own strengths, weaknesses, and purposes.
The five major asset classes we'll cover are: stocks (equities), property (real estate),precious metals, cryptocurrency, and bonds (fixed income).
Understanding these categories helps you make informed decisions about where to allocate your capital, how to balance risk and reward, and how to build a portfolio that can weather different economic conditions.
Why Multiple Asset Classes?
Different assets perform differently in different economic conditions. Stocks might soar when the economy is growing, while gold tends to shine during uncertainty.
Example: During the 2008 financial crisis, Australian stocks fell 40%, but gold rose 25%. In 2020-2021, tech stocks surged while gold consolidated. By understanding all your options, you can build a more resilient portfolio that performs across various market cycles.
Asset Classes at a Glance
Stocks
Company ownership
7-10% annual returns
Property
Real estate assets
6-9% annual returns
Gold/Silver
Precious metals
3-6% annual returns
Crypto
Digital currency
Highly variable
Bonds
Fixed income
3-5% annual returns
Stocks represent ownership in a company. When you buy shares, you own a piece of that business and benefit from its growth and profits.
ASX vs US Markets
ASX (Australian Securities Exchange): Home to Australian companies like Commonwealth Bank, BHP, Woolworths, and CSL. Offers franking credits on dividends for Australian tax residents — a significant benefit.
US Markets (NYSE, NASDAQ): Access to global giants like Apple, Microsoft, Tesla, and Amazon. Larger market with more diversification, but exposed to currency risk (AUD/USD fluctuations).
ETFs: Instant Diversification
Exchange Traded Funds (ETFs) are baskets of stocks that trade like a single share. Instead of picking individual companies, you buy exposure to entire markets or sectors.
VAS
Vanguard Australian Shares Index ETF — tracks the ASX 300 (top 300 Australian companies)
VGS
Vanguard International Shares Index ETF — global exposure excluding Australia
A200
BetaShares Australia 200 ETF — low-cost ASX 200 tracker with very low fees
Franking Credits Explained
Australian companies pay tax on profits before distributing dividends. If you receive a "franked dividend," you get a tax credit for the tax already paid by the company. This can significantly boost your after-tax returns.
Example: If a company pays $70 dividend and $30 tax (30% rate), you receive $70 cash plus a $30 tax credit. If your marginal tax rate is below 30%, you get a refund. This benefit is unique to Australian stocks and why many Aussie investors favour ASX shares over international ones.
Property has been a cornerstone of Australian wealth for decades...
Gold and silver have been stores of value for thousands of years...
Digital currencies that exist on blockchain networks...
Bonds are loans you make to governments or corporations...
Asset Class Comparison
Each asset class has different characteristics. Understanding these trade-offs helps you build a balanced portfolio.
| Asset Class | Risk Level | Expected Return | Liquidity | Australian Examples |
|---|---|---|---|---|
Stocks & ETFs | Medium-High | 7-10% p.a. | High | VAS, VGS, A200, CBA, BHP |
Property | Medium | 6-9% p.a. | Low | Direct property, REITs (MGR, CHC) |
Precious Metals | Medium | 3-6% p.a. | High | GOLD, PMGOLD, Perth Mint |
Cryptocurrency | Very High | Highly variable | High | Bitcoin, Ethereum via CoinSpot/Swyftx |
Bonds | Low | 3-5% p.a. | High | VGB, VAF, Govt bonds |
No Perfect Asset
Notice how each asset class excels in different areas. Stocks offer high growth but volatility. Bonds offer stability but low returns. Property builds wealth slowly but requires large capital.
This is why diversification across multiple asset classes is so important — you're building a portfolio where different assets perform well in different economic conditions, smoothing your overall returns.
Quick Reference Guide
Here's a snapshot of each asset class and when it shines.
Stocks & ETFs
Best for long-term growth. Ideal when economy is expanding. Australian investors benefit from franking credits.
Property
Tangible wealth builder. Use leverage to amplify returns. Strong in Australia's housing-focused culture.
Precious Metals
Portfolio insurance. Shines during inflation or crisis. Holds value when currencies weaken.
Cryptocurrency
High-risk, high-reward. Digital scarcity meets global demand. Volatile but potentially transformative.
Bonds
Stability and income. Balances stock volatility. Essential for preserving wealth near retirement.
Diversification
Combine multiple asset classes to reduce risk and smooth returns across different economic conditions.
What To Own - Asset Classes: Complete
- The five major asset classes (stocks, property, metals, crypto, bonds) each have unique risk-return profiles and roles in a portfolio.
- Australian investors benefit from franking credits on ASX dividends and tax advantages on property investment.
- No single asset is perfect—stocks offer growth but volatility, bonds offer stability but low returns, metals offer protection but no income.
Homework
Which asset classes do you currently own? Are you over-concentrated in one area (e.g., Australian property)? What's missing from your portfolio?
List your current investments and categorize them by asset class. Calculate what percentage of your net worth is in each category. Identify any obvious gaps or over-concentrations.
What's Next?
20 minutes