A traditional asset class consists of the following 4 asset classes: cash, bonds, property and equity.

Cash is the asset class with the lowest exposure to risk because a fixed interest rate is used. Cash as asset class is predominantly represented by money market instruments. When cash is used as an underlying asset it is important to into consideration the effect of inflation because traditionally this asset class struggles to outperform inflation over the long term. Cash can thus be seen as a short term asset class which can act as a safe haven in times of market fluctuations.

Bonds contain more risk than cash. Corporate and governmental institutions borrow capital and repay it at a fixed interest rate for a fixed time period. Capital is thus not liquid in this time period. Interest earned by the bond (the coupon) is usually higher than that of cash but is correlated to prevailing market cycles.

Property as an asset class contains more risk than fixed interest investments. An investment in property will be appropriate for investors requiring income as well as capital growth.

Equity is the asset class that has delivered the highest growth over time compared to other asset classes over the last 20 years. It also contains the highest level of risk. In an investment portfolio equity is used for capital growth but dividends are also declared by the underlying companies. This asset class is suitable for investors with an investment horizon of more than 5 years because of the inherent volatility of equities.