Diversifying your wealth: the main asset classes explained

In short:

1. Diversifying is not about multiplying products, it is about combining assets that do not react to the same drivers.
2. Each asset class is defined by a pair, expected return and risk borne, never by one of the two alone.
3. Property held through fund units and private markets add a constraint listed assets do not have: time to exit.
4. Holding ten different equity funds is not diversification, it is the same exposure in ten lines.

What diversifying means

Diversifying is not owning many products. It is holding assets whose behaviour does not depend on the same drivers. Ten international equity funds bought from ten different managers provide almost no diversification: they will rise and fall together.

The five main families

Cash

Regulated savings accounts, term deposits, money market funds. Low return, capital immediately available, no risk of nominal loss. Its function is availability, not performance.

Bonds

You lend to a government or a company in exchange for interest. Intermediate return, sensitive to interest rates: when rates rise, the value of bonds already issued falls. Historically used to cushion equity cycles, with correlations that do not always hold.

Equities

You own part of a company. This is the class with the highest expected long-term return, and the most volatile in the short run. A broad index ETF remains the simplest and cheapest way in.

Real estate

Held directly, or through units in SCPI property funds. Steady return from rent, sensitivity to the property market and to rates, and above all low liquidity. Rental income is heavily taxed outside a suitable wrapper.

Private markets

Private equity, private debt, infrastructure. Potentially high return, high fees, infrequent valuation, and capital locked for eight to ten years.

The criterion people forget

The last two columns of that table matter as much as the first. An illiquid asset class is not a bad one, but it imposes a constraint: money placed there cannot serve any other purpose for years. A coherent allocation therefore combines assets whose exit horizons match real needs.

Frequently asked questions

What are the main asset classes?

Five main families: cash (savings accounts, term deposits), bonds, equities, real estate held directly or through SCPI property fund units, and private markets covering private equity, private debt and infrastructure. Each has its own expected return, volatility and liquidity.

How do you diversify effectively?

By combining assets that do not react to the same drivers, rather than multiplying products. Holding several international equity funds diversifies almost nothing, since they move together. Real diversification mixes different classes, taking liquidity into account, meaning the time needed to get your money back.

Should private markets be part of an allocation?

It is never compulsory. Private markets can add extra return and apparent decorrelation, but they impose high fees and capital locked for eight to ten years. They work as a minority pocket, funded only with money you are certain not to need over that period.