An asset class is a group of investments which contain assets that are similar to each other in terms of their characteristics. For example, within fixed income, all securities pay a fixed coupon and have a fixed maturity date. Assets should also have similar risk and return attributes, and there should be a high correlation of returns between assets within the same asset class. Asset classes should also contain investments which are impacted by economic or financial market events. In a similar way, it is also typical for investments within an asset class to be regulated in similar ways.

Classifying investments into asset classes makes it easier for investors to assess various investment opportunities at a high level and to understand the performance of different types of investments. Investors can then use these asset classes to construct investment portfolios by allocating a proportion of their portfolio to each asset class based on its risk and return profile, as well as on their views on how each asset class will perform in the future. Investors can then manage their portfolios on an ongoing basis by updating the asset class weights as the economy or their risk profiles change.

Deciding between different asset classes is often viewed as a very important part of the portfolio construction process with some people believing that selecting the right asset classes is much more important than selecting the right individual stocks.