Which four major asset classes are commonly included in a diversified portfolio?

• A. Stocks, bonds, cash equivalents, and alternative assets such as real estate or commodities
• B. Real estate, currencies, collectibles, and art
• C. Only stocks and bonds
• D. Cash and checking accounts only

Answer: (A)

Diversification works best when you spread investments across asset types that don’t move together all the time. The four major asset classes usually included are stocks for growth, bonds for income and stability, cash equivalents for liquidity and capital preservation, and alternative assets such as real estate or commodities that often behave differently from stocks and bonds and can help hedge against inflation.

This mix balances risk and potential returns and tends to lower overall portfolio volatility compared with focusing on just one or two asset types. The other options either emphasize only niche or nontraditional assets, or are too narrow (focusing only on cash, or only on stocks and bonds), which won’t provide the same level of diversification.