Each asset class - stock, bonds, and cash equivalents, for example - is made up of a number of different groups of investments called subclasses.
Each member of a subclass shares distinctive qualities with other members of the subclass.
For example, some of the subclasses of the asset class bonds are US Treasury bonds, mortgage-backed agency bonds, corporate bonds, and high-yield bonds.
Similarly, some of the subclasses of stock are large-, medium-, and small-company stock, blue chip stock, growth stock, value stock, and income stock.
Because different subclasses of an asset class perform differently, carry different risks, and may go up and down in value at different times, you may be able to increase your return and offset certain risks by diversifying your portfolio by holding individual securities within a variety of subclasses within each asset class.
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