In the financial industry, there are a lot of terms that you need to be aware about. There area a myriad of terms that people will have to learn in order to properly conduct business in the market. Listing them cannot be done, but there are number of basic ones that will be necessary for any novice investor to learn about. These terms can help you in understanding the ways how the financial market works.
The first to start would most appropriately be knowing about assets, asset allocation and asset class. Generally, an asset is an item that have value which can be measured in monetary terms. These can be converted into cash which will subsequently be deposited to banks or as shares and property. Assets are also considered in terms of asset classes. Asset class is a group where the asset belongs which main groups can be classified as cash, property, shares or interest. Even with such basic groups there are other subclasses in them.
Asset allocation is the term used to explain the planned design on investment in various asset classes which can meet the objectives and needs of the investor along with their tolerance for risks. This is also used to diversify investment portfolio.
Diversification is the process by which assets are allocated. This simply means that you have different asset classes making your investment portfolio diverse to a degree. Diversification allows your investment to be spread throughout making you less likely to suffer risks compared to that of concentrating all the assets in a particular location. Putting each assets in different market cycles will mean that these investments will not be subjected to downs in any particular market. You can learn more on these financial phrases here!
In order to dampen risks, you need to diversify the asset classes. As an example, investing in only one share compared to several tens of shares, when the prior company fails or loses profit all your investment will almost certainly become affected. Compare that to having multiple or diversified shares in different key areas, even if one company loses profitability, loses will not be significant.
Investment portfolio is the term to describe the mixture or collection of investments you or an institution have. They are a collection of assets that are designed to ensure that the goals are met allowing risk tolerance and providing time frame. You can click on this link for more details: https://en.wikipedia.org/wiki/Finance.