Episode 213 - Diving into Asset Classes: What You Need to Know

Hey everybody and welcome to this week's episode of the weekly wealth podcast.

With this being 2025 and with some of the stock market volatility that has been happening, I've been working really hard to empower you to make great financial decisions within your portfolios.

Today we are going to talk about some different asset classes and really just give some definitions of some things that you you can invest your money into.

So we talk about the quote markets a lot, but yeah, there are some other places that you can invest your money that are not totally related to the stock markets.

So I hope that you enjoy this episode.

Welcome to the weekly Wealth Podcast.

I am certified financial planner David Chudick.

This podcast and my wealth management practice are both designed to help the mass affluent to live better lives by how they handle their money.

We talk about financial strategies, prosperous mindsets, and simply how to build true wealth.

So come on and let's enjoy this journey together.

Here we are and let's get started with this episode.

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All right, so here we go.

Let's talk a little bit about asset classes.

So the first obvious question would be like, what exactly is an asset?

So in simple terms, an asset is something that you own that has value and the potential to generate income or grow in worth over time.

So assets can be physical, like gold, like real estate, like your vehicle, or it can be intangible, like stocks or intellectual property.

So I always tell my clients that almost all asset classes have positives and negatives.

We're going to talk about some of those today.

Some asset classes produce income, some appreciate over time.

Some do both.

Some assets carry more risk than others.

But the key is understanding how different types of Assets work so that you can build a portfolio that helps you to achieve your financial goals.

Let's start from some of the most common types of assets and let's start with stocks or what we might call equities.

So stocks represent ownerships in a company.

When you own a stock, you are a shareholder, whether that's in a blue chip company or a fast growing startup.

So you can be an owner of Apple.

Many people, whether it's through a mutual fund or individual shares, they might own a share or two or many shares of Apple.

And that means that they are a part owner of the company.

One of the pros of equities or stocks is that there's a long term potential to build value.

They're typically very liquid, which means you can buy them and sell them very easily.

Now the liquidity also sometimes allows for emotional decisions.

The fact that you can sell them sometimes creates scenarios where investors sell out too early and they lock in a loss.

And also there are lots of options for diversification with stocks and equity.

So you can buy stocks that are from different sectors, from different geographical areas.

You can buy stocks that are in certain industry.

So there are a lot of ways to diversify.

And diversification is almost always a really good thing.

Now some of the negatives of stocks is you will have market volatility.

So you can look on your login for your brokerage account or you can look at a website like a cnbc.com and you could see that your share of stock maybe went up in value or it may have gone down in value.

Investing in stocks, investing in equities requires emotional discipline.

And yeah, individual, individual stocks can carry company specific risks, they can carry industry specific risk, and they can carry market risk.

So stocks are very common, a lot of positives to them, There are a few negatives.

But it's important to have a philosophy with your equity investing.

Another very common type of asset are bonds and bonds.

You're essentially loaning money to a corporation or government in exchange for interest.

Now you'll also hear bonds referred to as fixed income, as opposed to equities, which are stocks.

So with bonds, some of the pros are they can be more stable than stocks.

They can provide regular income, and of course they can provide some diversification for your portfolio.

Now some cons of bonds are lower long term returns potentially.

They can be sensitive to interest rate changes and inflation can reduce real value.

So when companies or governments need to raise money, they oftentimes issue bonds.

And the bond purchase purchaser will purchase into a bond for let's say $100.

And then the bond coupon rate might be, let's say 5%.

So the bondholder would get 5%.

And then at the end of the period when the bond matures, they will receive their money back.

Now there is some risk that the entity will not be able to pay the bond back.

And that is why oftentimes you'd want to look at having quality bonds, not junk bonds.

All right, so let's move on to real estate.

Real estate is a powerful wealth building tool, but it does come in several different flavors.

So we have residential real estate.

These are single family homes, apartment and condos rented to individuals.

Now the pros of these are they are, it's passive income, there are some tax benefits and some potential appreciation.

The cons are there are going to be some maintenance costs, there may be some tenant issues, there may be some market fluctuation.

And of course, these are not liquid investments.

So if you want to get money out of your real estate, you have two options.

You can sell it or you can take a loan against it.

Whereas like we discussed, your stock portfolio, you could very easily sell stock and liquidate stock because it's more liquid.

Of course we have commercial real estate, which includes office buildings, retail spaces, warehouses, things like that.

Of course, these might have long term leases as a pro, higher income potential.

And then the cons would be these might be some complex properties with complex management scenarios, economic sensitivity, higher upfront costs and things like that.

So a lot of money can be made in the commercial real estate world, but it can be complicated as well.

And then finally we have raw land.

And this is undeveloped land for future use or resale.

Now the pros of this is it's very low maintenance, so you have very little expenses and there is some speculative upside.

So if you buy real estate in the right area, it could increase by a lot of money.

Remember, the three rules of real estate are location, location, location.

But the cons of raw land is you don't have any income coming from it.

There could be some zoning risk and it is illiquid.

So raw land can be a great holding for you.

Just understand the pros and the cons.

Now, as far as real estate goes, there are several different ways to own real estate.

You can purchase property directly, so you can buy a property, you can manage it, you can collect rent, or you can buy a property and you can pay a management company to manage it and collect rent, or you can purchase into a real estate investment trust.

Now these are traded like stocks and they give you exposure without the management hassles.

So if you bought a real estate investment trust, you might have a diversified portfolio of different holdings, but not have the hassle of having to manage and purchase the individual properties themselves.

Precious metals, this is gold, silver, platinum, etc.

These are often considered a hedge against inflation and economic instability.

So some of the pros of owning precious metals is that it is a tangible asset and it does historically retain its value.

Now, some of the cons are there are no income, it can be volatile, and there are storage and security concerns.

So if you've considered owning gold, you can actually hold physical gold, you can hold physical silver, and then of course, you have to store it.

And physical items can disappear, they can be stolen, they can be damaged in a disaster, or you can own precious metals as part of a mutual fund, etf, things like that.

So what do you think?

Do you own any precious metals?

Do you think that owning precious metals is a good part of your portfolio?

So let's move on to cryptocurrency.

These are digital assets like Bitcoin and Ethereum.

These have tremendous upside, but they are decentralized, they're innovation friendly, and they're the new thing.

So those are some of the pros of cryptocurrency.

They also are somewhat untrackable, so they are anonymous.

Some of the cons are cryptocurrencies have extreme volatility.

We just don't know what's going to happen with regulation with regard to cryptocurrency currencies, and they're not yet mainstream.

And another part of the cryptocurrency that's both a pro and a con is that they are fairly untrackable and unregulated.

Now, like most people, I don't want the government in my life and in my business.

But if cryptocurrency funds are used for bad things, let's say for sex trafficking or things like that, maybe I do want a little bit of money trail to be able to catch the bad guys.

So with every pro, sometimes there is a con.

And the fact that cryptocurrency can be untrackable, I think it's both a good thing and a bad thing.

A lot of what we've heard about lately with some investors is why don't I put my money in cash while the market volatility is happening?

So our next asset class are cash and cash equivalents.

So these include things like savings accounts, CDs, money market funds, and so on.

Now, of course, these are typically liquid, except for your CDs, may have a holding period of maybe several months to several years.

There's a lot of safety and very low risk.

So many of the cash equivalents, if they're issued by a bank, would or might be insured by the fdic, the Federal Deposit Insurance Corporation, and that would provide a lot of peace of mind for the holders.

Now, the cons are very low returns.

So your CDs, they typically are going to earn much, much less than your average equity exposure over time.

So low returns and they would be vulnerable to inflation erosion.

If your CD or your money market or your savings account is earning less than inflation, well, yes, you might not be losing actual value of your account, but you are losing purchasing power.

If your CD, for example, is getting 2% and the general rate of inflation is 4%, you're losing 2% purchasing power each year.

Now, there may not be a problem with having some of your money in CDs and cash equivalents.

As a matter of fact, we should have some there for things like emergency funds.

But let's make sure we have the right amount of cash within our net worth, not too much.

Now, private equity and venture capitals, these are ownership in private equities, often via funds or direct investment.

These are not traded on the stock market.

So these are not funds that you can log in and look at on CNBC with a ticker symbol.

These have high growth potential.

Private equity funds are known to have higher rates of return over time.

They have access to innovation, and you have the pooling of resources and the ability for private equity funds to grow companies and then sell them.

Now, some of the cons of private equity is that they are illiquid, so your money's tied up for a period.

They typically might have a high minimum investment, maybe several hundred thousand dollars or more.

They could have some risk because they're not guaranteed.

And then also there typically are some net worth minimums in order to invest in private equity investment.

So you might have to be an accredited investor or even more than that.

So you may have to have million dollar net worth or $3 million net worth or $5 million net worth.

So there are some barriers to entry with venture capital.

All right, now let's look at some non traditional investments.

Let's look at fine arts and collectibles.

Now, this would include paintings, sculptures, rare coins, vintage wine, maybe classic cars, baseball cards, you name it, things that might have some value.

And yeah, there are some pros to these types of asset classes.

They can appreciate significantly over time.

These might be things that are just fun.

If you enjoy cars or if you enjoy baseball cards or wine, it could be enjoyable to own.

And you just might get a little bit more enjoyment out of this process than you would out of, let's say just buying a stock or a bond.

And they can have a low correlation to traditional markets.

So the stock markets may be going down and your baseball card or your classic car may be going up.

Now the cons of this is these are illiquid and subject to valuations.

So how much is that baseball card worth?

It's really worth what somebody's willing to pay for it.

And there's no price tag you can put on it.

Because if I put a price tag of $100,000 on a baseball card, if nobody offers me that hundred thousand dollars, then it really isn't worth $100,000.

So these valuations are very subjective.

There can be high transaction fees or auction costs.

So oftentimes when you're end arts and collectibles, they need to be sold at auctions.

And of course the auctioneers work on a percentage basis.

So you are not going to walk away with as much money as the sale.

And they do require expertise and third party appraisals.

There are fakes out there and you need to know what you're doing.

So a pro tip here is these assets often work best for the ultra high net worth investors as a small slice of a diversified portfolio.

You can also direct invest indirectly versus with art funds or fractional platforms that let you own co own a piece of Picasso without needing the museum space in your home.

So a lot of people want to get into fine arts and collectibles because it sounds fun.

But yes, there is some work involved, there is some expense and there is some expertise involved.

And now let's look at the asset that you might have the most control over.

And that's if you're a business owner, it is your business itself.

So if you own a restaurant, if you own a manufacturing facility, if you own any type of a business, you need to be looking at your business as an asset.

So let me say that again.

You need to be looking at your business as an asset, not just an ATM machine that you take money out of every two weeks, every week, any month like that.

So there are eight drivers of business value.

There are eight things that if you get them right, can help you to sell your business for a higher multiple when you're ready, or you can simply have an easier and more profitable life today.

So if you are a business owner and if you'd like to talk to me about some ways to make your business more sellable.

So as a business owner, you put your heart, you put your soul into running your business and let's do the things that can make our businesses more sellable.

So again, www.weeklywealthpodcast.com valuebuilderscore and remember, in addition to being a Certified Financial Planner where I help my clients with all the traditional financial planning TAs that need to be done in anybody's life, which is retirement planning, investment planning, we do some tax planning, things like that.

I am also a Certified Value Builder Advisor and that means that I can help you to build the value of your business and plan the exit of your business.

So again www.weeklywealthpodcast.com valuebuilderscore I'd love to know what your thoughts are on asset classes and I'd also love to know what your thoughts on the recent market volatility.

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All right everybody, this was a quick look at different asset classes.

It was a quick look at the positives and negatives of each type of asset class and hopefully it gave you some insight that you can use to make decisions for your own investments or that you can speak with your financial advisor about.

So until next episode, I wish everybody a blessed week.

Thanks everybody.

Investment advice offered through Parallel Financial and SEC Registered Investment Advisor able to conduct advisory business in states where it had registered or exempt or excluded from registration contents contained herein or for informational purposes only and should not be construed as an offer or solicitation for investment advice or for the purchase or sale of any security, insurance or other investment production.