Asset Classes Simplified

Now that we've figured out liquid and illiquid, what are asset classes? I like simplicity. Complication frequently passes for wisdom, but it really is a method for obfuscating the issue.
If you can't understand it, then you must need an 'advisor' who does. Then you can pay him/her to make decisions for you. If it's simple, you don't need them, and that doesn't get their kids through college. That's why lawyers like more laws, doctors like more illnesses and accountants like more convoluted tax codes.
So, there are, to my mind, four asset classes. Things the average human being can realistically invest in.
Stocks
Cash
Bonds
Real Estate
People will throw up stuff like gold and silver, stamps, art. That's fine, but regular people don't buy that stuff. For collectibles, it's almost impossible to overcome the difference between what you pay and what you can resell for, unless it is your children's children who are doing the selling. The markups on art, stamps, antiques is simply too high. If you bought it for $1,000, and try and resell it the next day, you'll be offered $500. Unless you can find your own sucker at some point.
Gold and silver are less so, and I suppose there's a place for them. I watched the Hunts go broke 'playing' silver, and the price of gold do nothing for thirty years, then a recent boom. Personally, I think the current price is preposterous, approaching tulip bulb levels at their peak, but what do I know? I do know there's no shortage of gold, and no shortage of diamonds. It's merely a controlled market creating artificially high prices. Maybe I'll go into it in another blog.
In setting up your investment portfolio, you can do quite well with a mixture of the four asset classes above.
How much you devote to each, what percentage of your investable dollars, is a matter of personal risk tolerance. Can't answer that one for you. Here's some general guidelines.
You are a finite entity. Sorry to break the news, but you not only can't take it with you, but past a certain age, it doesn't do you much good. After age 75 or 80, what in heck can you spend the money doing? Hang gliding, mountain climbing, Parkour? Existing in doctor's offices and hospitals? Early bird dinner specials? The horror of baby boomers 'rockin' out' to Proud Mary?
Institutions, like Endowments, Trusts, Pension plans, are, at least theoretically, infinite entities, you are not.
That means they can take on more risk than an individual, because an individual retires and starts spending his savings and investments, or he dies and his inheritors start spending it.
Consequently, a Trust or Endowment can buy riskier investments because they have a very long time horizon for the investment to work out favorably.
On the other hand, I just made an argument for spending it while you're young enough to enjoy it. And there's one thing you can bank on, you can't spend money and save it at the same time. (Although realtors will happily explain why a huge mortgage and contributing to a 401k both make sense. They don't, that's where the complicated jive I mentioned above comes in.)
We'll chat more about houses (gag) later.
In sum, while the temptation to spend, spend, spend while you are young and lovely is there, you might want to think over being laid off at 55, at which point no corporation on earth will pay you a living wage, (overcompensated CEO's excepted) and you're 10 or more years out from social security, which isn't a living wage either.
You'll need something in the bank or investment account to draw down for those Proud Mary moments unless you want to burden your children, or don't mind shacking up in a cardboard box.
Next time, we'll talk about WHAT stocks, bonds, cash and real estate. Stay in touch.