Asset Classes — 7 Topics

Equity represents ownership in a corporation. Buying a stock makes an investor a shareholder.

Market Capitalization Spectrum

Payoff Structure

Linear with underlying price. Components include capital gains/losses and dividends.

Example: 100 shares at $100, $2 dividend. Price rises to $120 → gain $20/share + $2 dividend = $22 total per share.

Bonds are debt instruments with face value, coupon rate, and maturity date.

How It Works

1. Investor pays face value to issuer.
2. Issuer makes periodic coupon payments.
3. Issuer returns face value at maturity.

Payoff Scenarios

Example: 10-year $1,000 bond at 5% pays $50/year and $1,000 at maturity.

Cash and equivalents (T-bills, money market funds) are highly liquid, short-term holdings.

Mechanics

Stored in secure, low-risk accounts for immediate access.

Payoff

Low, stable interest; focus is liquidity and safety.

Example: High-yield savings account or certificate of deposit.

Gold exposure via physical holdings or financial instruments like ETFs or futures.

Mechanics

Price driven by supply/demand, industrial and jewelry use, and safe-haven demand.

Payoff

Capital appreciation only; no income component.

Example: Buy a gold ETF share; value rises with gold price.

Digital currencies secured by cryptography on decentralized blockchains.

Mechanics

Transactions recorded on distributed ledgers, independent of central banks.

Payoff

Capital appreciation driven by demand, adoption, and technology evolution.

Example: Buy BTC or ETH on an exchange; profit if price rises.

Options grant the right, not obligation, to buy (call) or sell (put) an underlying at a strike price by expiration. Buyer pays a premium.

Payoff (Non-linear)

Example: Buy $50 call for $2. If stock is $60 → profit = 60 - 50 - 2 = $8. If stock is $40 → loss limited to $2 premium.

Standardized contracts obligating parties to buy or sell an asset at a set price on a future date. Traded on margin and marked-to-market daily.

Payoff (Linear)

Example: Farmer locks $5.00 per bushel for 5,000 bushels. If price rises to $5.50, farmer loses $0.50 per bushel; buyer gains $0.50 per bushel.