Stocks are a way for an investor to own a part of a company. Stock holders are thus owners of the company, which means they enjoy all the upside benefits of the company's growth. On the flip side, if the company goes bankrupt, stock holders are last in line (behind bondholders and the government) in recouping their investments. Historically, stocks have had better returns than bonds and investors often talk of the "buy and hold" strategy for stocks, i.e. identify a well-run, profitable company and invest in its stock for the long term. However, recent market events have shaken some of these ideas and it is good to compare stocks against all available asset classes before investing in them.

Stocks pay dividends, which add significantly to their attraction. However, unlike interest payments on bonds, stock dividends can be suspended or reduced by the company's board. It is good to compare a stock's dividend yield (the dividend it pays over its current price) against others in its industry to determine its value. Another measure used to compare stocks is the Price-to-earnings or P/E ratio. Under this approach called Value Investing, the more expensive (highly priced) a stock is versus its past or future earnings, the less attractive it is. Another approach is to carefully study the growth prospects, quality of management and other fundamental factors that make up a company to determine its future value. If the future value is adequately higher than the current value, this approach, called Growth Investing, recommends buying the stock. See our Insights section for more details.

Bonds are like loans you are making to the bond issuer, which means they offer a predetermined amount of interest on your initial investment. This fixed payment is called a coupon.  Bonds are similar to a CD except that they are issued by the government (federal, state and county) as well as corporations. Investing in bonds issued by state and local government (called Municipal or Muni bonds) provides tax advantages because their coupons are tax exempt. The fixed amount of income they offer make bonds very attractive at times when the general price of assets is going down (for example during a recession). When prices of everything are going up (i.e. during inflation), bonds are not so attractive. Another factor to consider before investing in bonds is the creditworthiness of the bond issuer because a bond is only as safe as the entity that stands behind it.

Mutual Funds and ETFs offer exposure to a set of assets that are similar in some way. For example a European stock mutual fund will buy equities of European companies. If you buy a piece of the mutual fund (i.e. fund units), you will indirectly own the underlying European stocks. An ETF is a basket of similar assets, for example a bunch of highly rated corporate bonds, that is itself listed on the stock exchange like a single security. You can buy shares of ETFs just like you buy stocks and gain exposure to the underlying assets.

Broadly, mutual funds can be actively managed, in which case they charge management fees in return for their services, or can be indexed, i.e. the fund simply follows an index and moves up or down with it. ETFs do not charge fees, a major reason for their growing popularity versus mutual funds. ETFs investments are also simpler logistically. However, they don't offer the benefit of a portfolio manager's stock picking abilities which actively managed mutual funds do.

It is important to consider the impact of a mutual fund or ETF on your overall portfolio before investing in them.

Real estate investments require a larger outlay (i.e. money to be invested upfront). They are also less liquid than stocks or bonds. However they offer several advantages. For one thing, it is easier to be leveraged in these investments than in any other, i.e. you can borrow to buy real estate easier than you can borrow to buy stocks. Secondly there are major tax advantages to buying a house since mortgage interest is deducted from your taxable income. Real estate purchased for investment purposes can also be rented out. Rental income is an excellent way to protect against inflation because rents move up when prices of goods and services rise. Until the recent recession starting 2007, real estate values had been on a steady upward trajectory. While the bursting of the housing bubble has changed iperceptions about the unbeatability of real estate returns, it is still true that real estate is a great investment because it has higher direct demand than other asset classes. Everyone needs a place to live and work in, not everyone needs to buy a bond.

Alternative investments include assets such as hedge funds, private equity, venture capital, art and antiques. Alternative investments have been in the news lately for their successful use by institutional investors such as university endowments to earn returns that far surpass traditional stocks and bonds.

The term hedge fund is a generic description which simply implies a private fund which can pursue multiple investment strategies and also employ substantial leverage (often without supervision by any regulatory body). Most hedge funds require a minimum investment of $1 million making them out of bounds for medium net worth investors. However, there are a number of mutual funds that mimic investment strategies of hedge funds to offer their investors higher returns at increased levels of risk. Notable amongst these are long-short funds which use proceeds from short sales to buy stock they think is undervalued Such funds allow access to profits from employing innovative portfolio management strategies.

Private equity (PE) is an equity ownership interest in a company that is not listed or traded on a public exchange. Direct participation in PE firms is also off limits to medium net worth investors but the stock of a number of PE companies are listed on the NYSE. This can allow you to take gain access to the profits generated by PE companies’ successful turnaround of businesses.

Venture Capital (VC) firms also invest in private companies, but they do so at a very early stage in the company’s life and then take it public to cash out in an IPO. Like PE companies, these cannot be directly accessed by most investors. There are now VC mutual funds in the market that act as “fund of funds”, i.e. they invest in a number of VC firms thus allowing their investors to access the returns of VC firms.

Investment in art and antiques has been done for centuries and is now enjoying a resurgence thanks to the impressive performance of many art-focused funds. These funds use their managers’ inside knowledge of the value of paintings and antiques to invest in undervalued works, thus offering their investors exposure to the high appreciation rates that occur in the art world.