The Three Asset Classes Breakdown
Building real wealth isn’t complicated. Yes, there are hundreds of ways you can invest your money. But besides having clear goals, dedicated action, and an amazing community to hold you accountable, all you need is an understanding of the 3 main asset classes—and then, a plan to invest in them.
Let’s talk about each asset class and its pros and cons.
Paper
Think stocks, bonds, mutual funds, and ETFs. These are investments that you can’t see or touch (but their gains are very real) so their ownership is documented with paper. Let’s break it down:
Low barrier to entry: You can get started with almost any amount of money.
Low risk: When you implement the right strategy and diversify your holdings.
High liquidity: If you change your mind and want or need your money back, you can get back very quickly and (often) without penalty.
Returns: Historically, the market has produced an 8% average annual return (which is way more than your plain-Jane savings account or even an HYSA).
Emotional rollercoaster: Optimism, excitement, and euphoria are common feelings when the stock market is on the rise, but once it takes a little dip, fear and panic immediately take over. This is when we see irrational investors start to sell their securities. Our advice? Remember that we’re in it for the long haul. The market will fluctuate, that is just what it does.
Real Estate
This is a tangible asset. An investment you can see, feel and live in. Better yet, you can have someone else live in it and pay you to do so (hello passive income). Let’s break it down:
Medium barrier to entry: You’ll need cash for the down payment (anywhere from 3-20%) and have a certain credit profile in order to qualify for a loan.
Low liquidity: It can take much longer to pull money out of a real estate investment than the stock market (it usually takes a minimum of 30 days to close on a property after you find a buyer).
Medium risk: Appreciation is not guaranteed and can vary depending on your market and location, among other factors.
Returns: On average, across the US, homes appreciate ~4% annually.
Business
This asset class is two-pronged: entrepreneurship, where you invest in your own business, and business investing, where you invest in someone else’s business. Let’s break it down:
High barrier to entry: Starting your own biz is no easy task and typically requires a lot of time, money, or both. Interested in investing in other people’s businesses? Check out this blog post to see what it takes.
High risk: 50% of businesses fail within the first 5 years.
Liquidity: The level of liquidity depends on your business. For example, if you’re selling merch, it may be higher than if you’re selling a service or something less tangible.
Returns: With high risk comes the potential for high returns! There is no cap when it comes to the returns you could see in this asset class.
How you spread your money across the different asset classes comes down to your personal goals, preferences, and risk tolerance.
To hear from Factora women who have already reached millionaire status (and how they got there) check out these episodes of Coffee & Coin:
Renee G. - From scarcity mindset to millionaire
Whitney A. - A simple path to millionaire status
Steph D. - From school teacher to multi-millionaire
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Get even more insights with our weekly podcast, Coffee & Coin, hosted by our Founder & CEO, Allegra Moet Brantly.
Ready to take your financial life to the next level? The Wealth Circle is our live online course and community dedicated to helping women invest confidently and reach financial freedom.