What is an asset class?

An asset class is defined as a group of financial instruments that share similar characteristics and behave similarly in the marketplace. This classification typically includes categories like stocks, bonds, real estate, and cash equivalents, among others. Each asset class responds differently to economic conditions, which is important for investors to understand when diversifying their portfolios.

By grouping financial instruments into classes, investors can make more informed decisions regarding their risk tolerance and investment strategies, as each class has its own risk and return profile. For instance, equities (stocks) generally offer higher potential returns but come with greater risk, while fixed income securities (bonds) tend to be more stable but with lower returns.

While the other options touch on aspects of finance, they don't accurately define what an asset class is. A specific type of investment strategy pertains to how to allocate investments among different asset classes, while an individual financial product refers to singular instruments rather than categories as a whole, and a form of currency used in trading does not encompass the broader concept of asset classifications in investment.