You Are In

  • Life Goals
  • Day To Day Banking
  • Deals & Promotions
  • Digital Services
  • Help & Support
  • Quicklinks


When it comes to investing, it's important to have a clear understanding of the different asset classes available to you. Simply put, asset classes are categories of investments that share similar characteristics and behaviours in the market.


This understanding will allow you to  diversify your investments across various asset classes, ultimately helping you to reduce overall risk and potentially increase your chances of success.


Here, having an investment strategy that suits you and is also financially sound (this is really important) is integral to knowing which asset classes to start investing in—so let’s get started! 

Stocks or Equities

Equities represent ownership shares issued by publicly-traded companies and are traded on stock exchanges like NYSE or NASDAQ. Investing in stocks can provide potential profits through share price appreciation or dividends.


Stocks also allow you to become shareholders and participate in the growth and success of companies. When you buy stocks, you essentially own a portion of the company, and have a claim on its assets and earnings.


In general, stocks can be classified into three different categories based on the market capitalisation of the companies: 


  • Small-cap stocks: Shares of smaller companies with a market capitalisation generally below $2 billion.
  • Mid-cap stocks: shares of medium-sized companies with a market capitalisation between $2 billion and $10 billion.
  • Large-cap stocks: Shares of large companies with a market capitalisation exceeding $10 billion


Investors can choose stocks based on their risk tolerance and investment objectives.


“Okay, I get that, but where do I start?”


Finding the right stock to invest in can be tedious, but in order to reap the rewards, you must first sow the seeds. Don’t jump in head first, ensure that you are confident and comfortable with the investment before making the call. 

Bonds or Fixed-Income Investments

1. Bonds


Bonds are generally considered less risky compared to equities and other asset classes. This type provides a fixed income stream over a specific period, making it attractive to conservative investors seeking stable returns.


Bonds are rated by credit rating agencies based on the issuer's creditworthiness. Higher-rated bonds are considered less risky, while lower-rated bonds carry higher risks while simultaneously offering potentially higher yields.


Looking to get started? Get in touch with us! Head on over to our Bond Investment 101 article to learn more about bonds, and perhaps you’ll start your journey today by contacting your relationship manager or by visiting any CIMB bank branches.



2. Fixed-income Investment


Fixed-income investments involve debt securities that generate returns in the form of interest.


When you invest in bonds, you essentially lend money to the issuer, which can be a government entity, municipality, or corporation. In return, you receive periodic interest payments and the return of the principal amount at maturity.


This asset class is where the Employee’s Provision Fund (EPF) falls under. EPF is a scheme that holds significant importance in promoting financial security for individuals.


Employers and employees both contribute a portion of their salaries to the EPF, which is then invested for retirement planning. The scheme ensures a safety net and long-term stability during retirement, offering additional benefits for housing, education, and medical expenses. 

Cash or Cash Equivalents

Cash or cash equivalents offer high liquidity, meaning you can easily access your funds whenever needed. Cash equivalents are highly liquid investments that can be quickly converted into cash, such as money market funds or short-term government bonds.


Money market funds invest in short-term debt securities with low risk and provide stability of principal. This type of instrument is a cash equivalent that offers a slightly higher return compared to traditional savings accounts.


Cash and cash equivalents are often used as a safe haven or emergency fund, providing stability and readily available funds for unexpected expenses or immediate investment opportunities.


Usually, these funds are regulated by the Securities Commission Malaysia and offer individuals and institutional investors the opportunity to invest in a diversified portfolio of money market instruments.


Here are some examples of money market instruments commonly found in Malaysia:

  • Malaysian Government Investment Issue (MGII): MGII is a short-term debt instrument issued by the Malaysian government.

  • Bank Negara Malaysia Treasury Bills (BNM T-Bills): These are short-term debt securities issued by Bank Negara Malaysia, the central bank of Malaysia.

  • Negotiable Instruments of Deposit (NID): NIDs are short-term debt instruments issued by banks in Malaysia.

  • Commercial Papers: Commercial papers issued by reputable corporations and financial institutions in Malaysia are another common money market instrument.

  • Islamic Money Market Instruments: Malaysia has a vibrant Islamic finance industry, and there are also Shahriah-compliant money market instruments available. 

Real Estate or Tangible Assets

Real estate and physical assets serve as an asset class that acts as a hedge against inflation.


Unlike purely financial instruments, real estate and tangible assets have a physical presence. Investing in real estate can provide income through rental properties or profit through property appreciation.


Real estate can be a long-term investment that provides both cash flow and potential capital appreciation.


Tangible assets, such as commodities or natural resources, also fall under this category. Investments in real estate or tangible assets offer diversification benefits by having a low correlation with traditional financial markets.


Forex, Futures, and Derivatives

This category encompasses various financial instruments such as futures contracts, spot and forward foreign exchange, options, and an expanding range of derivatives. Derivatives are instruments derived from underlying assets, such as stock options derived from stocks.


Forex (foreign exchange) involves trading different currencies against each other, while futures contracts are agreements to buy or sell an asset at a predetermined price and future date.


Derivatives are often used for hedging, speculation, or gaining exposure to specific assets or markets. Forex, futures, and derivatives can be more complex and carry higher risks compared to other asset classes. 

Asset Classes and Diversification: Building a Strong Foundation


Now that you understand what the different asset classes are, you can explore diversifying your portfolio of investments.


Each asset class has its own risk and return profile, and they tend to have little correlation with one another.


Asset classes with little correlation offer a significant advantage for investors seeking to reduce risk. When one asset class underperforms, others may be performing well, which helps offset losses.


This hedging effect can be achieved by diversifying across asset classes, a strategy known as asset allocation.

The Role of Precious Metals in Diversification


One asset class that often stands out for its diversification benefits is precious metals, such as gold and silver.


Precious metals have long been considered a safe haven for investors during times of market volatility and economic uncertainty. They act as a hedge against inflation and can preserve wealth when traditional investments face challenges.


Investors have various options to access precious metals. Physical ownership allows for direct possession of gold or silver, providing a tangible asset.


Exchange-Traded Funds (ETFs) offer an alternative, allowing investors to gain exposure to precious metals without physical ownership. Additionally, investing in mining stocks can provide indirect exposure to precious metals' performance.


Successful Investments in Precious Metals


To make successful investments in precious metals, careful research and consideration of market trends are necessary.


Just like any investment, it's essential to analyse supply and demand dynamics, geopolitical factors, and economic indicators that can impact the prices of gold and silver.


Moreover, investors should pay attention to the broader financial landscape. For instance, during periods of economic growth, precious metals might not perform as strongly as other asset classes.


It's crucial to evaluate the overall market conditions and make informed decisions based on your investment goals and risk tolerance.

Asset Allocation and Risk Tolerance


Asset allocation is the strategy of dividing your investment portfolio across different asset classes based on your risk tolerance and investment goals. It


helps achieve a balance between risk and potential returns by diversifying investments.


Risk tolerance varies among individuals, with some favouring safer options like bonds and cash equivalents, while others opt for higher-risk investments like stocks.


By spreading out investments, asset allocation reduces the impact of poor performance in any single investment.


Regular monitoring and adjustments are necessary to align with changing goals and risk tolerance. Overall, asset allocation is crucial for creating a well-balanced portfolio that reflects individual preferences and maximises risk-adjusted returns.

An Important Recap


In conclusion, understanding the different asset classes available to you is crucial for diversifying your investments. By spreading your investments across stocks, bonds, cash equivalents, real estate, and other asset classes, you can potentially reduce risk and increase your chances of achieving your investment goals. Remember to align your asset allocation strategy with your risk tolerance and investment objectives to build a well-balanced portfolio.


This article is for informational purposes only and CIMB does not make any representation and warranty as to the accuracy, completeness and fairness of any information contained in this article. As this article is general in nature, it is not intended to address the circumstances of any particular individual or entity. You are advised to consult a financial advisor or investment professional before making any decisions based on the information contained in this article. CIMB assumes no liability for any consequences arising from your reliance on the information presented here.