Investments, tenth edition

2

  YOU LEARNED IN 

Chapter 1 that the pro-

cess of building an investment portfolio usu-

ally begins by deciding how much money to 

allocate to broad classes of assets, such as safe 

money market securities or bank accounts, 

longer term bonds, stocks, or even asset 

classes like real estate or precious metals. This 

process is called  asset allocation.  Within each 

class the investor then selects specific assets 

from a more detailed menu. This is called 

 security selection.  

 Each broad asset class contains many spe-

cific security types, and the many variations 

on a theme can be overwhelming. Our goal 

in this chapter is to introduce you to the 

important features of broad classes of securi-

ties. Toward this end, we organize our tour of 

financial instruments according to asset class. 

 Financial markets are traditionally seg-

mented into