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How to make the four basic chart types

4 Basic Flowchart Symbols for Creating a Flowchart

Whether you’re trying to read a flowchart or creating a flowchart, knowing the most common flowchart symbols and conventions is going to make it a lot easier. Here, we’ve got the four flowchart symbols you’ve got to know, plus a rundown on some more intermediate process symbols if you’re looking for extra credit.

1. The Oval

An End or Beginning While Creating a Flowchart

The oval, or terminator, is used to represent the start and end of a process. Use the Gliffy flowchart tool to drag and drop one of these bad boys and you’ve got yourself the beginning of a flowchart. Remember to use the same symbol again to show that your flowchart is complete.

2. The Rectangle

A Step in the Flowcharting Process

The rectangle is your go-to symbol once you’ve started flowcharting. It represents any step in the process you’re diagramming and is the workhorse of the flowchart diagram. Use rectangles to capture process steps like basic tasks or actions in your process.

3. The Arrow

Indicate Directional Flow

How to make the four basic chart types

The arrow is used to guide the viewer along their flowcharting path. And while there are many different types of arrow tips to choose from, we recommend sticking with one or two for your entire flowchart. This keeps your diagram looking clean, but also allows you to emphasize certain steps in your process.

4. The Diamond

Indicate a Decision

The diamond symbolizes that a decision is required to move forward. This could be a binary, this-or-that choice or a more complex decision with multiple choices. Make sure that you capture each possible choice within your diagram.

With those four basic symbols, you likely have everything you need to get started on your own flowchart! Give creating a flowchart a try with a free trial of Gliffy or read on for more info on intermediate flowcharting symbols.

Intermediate & Advanced Flowchart Symbols

As you know, flowcharts are made up of a sequence of actions, data, services, and/or materials. They illustrate where data is being input and output, where information is being stored, what decisions need to be made, and which people need to be involved. In addition the basic flowchart conventions, rules, and symbols, these intermediate flowchart symbols will help you describe your process with even more detail.

Document Symbols

How to make the four basic chart types

Single and multiple document icons show that there are additional points of reference involved in your flowchart. You might use these to indicate items like “create an invoice” or “review testing paperwork.”

Data Symbols

How to make the four basic chart types

Data symbols clarify where the data your flowchart references is being stored. (You probably won’t use the paper tape symbol, but it definitely came in handy back in the day.)

Input & Output Symbols

How to make the four basic chart types

Input and output symbols show where and how data is coming in and out throughout your process.

Merging & Connecting Symbols

How to make the four basic chart types

Agreed-upon merging and connector symbols make it easier to connect flowcharts that span multiple pages.

Additional Useful Flowchart Symbols

How to make the four basic chart types

The above are a few additional symbols that prove your flowcharting prowess when put to good use.

Other Notation Types

While all the above are examples of generic flowchart shapes, you may be using a different type of modeling notation that includes more specific use cases — and more specific shapes to match. Check out these additional resources:

Start Creating a Flowchart

You’ve got the building blocks to make an awesome flowchart, so get started!

3 Sep 2020 / 24 minutes to read

Essential Chart includes a comprehensive set of more than 35 Chart types for all your business needs. Each one is highly and easily configurable with built-in support for creating stunning visual effects.

Chart types are specified on each ChartSeries through the Type property. All the chart types are required to have at least one X and one Y value. Certain chart types need more than one Y value.

The following table narrates the minimum and maximum number of series and number of Y values required by each type of chart supported by Essential Chart.

Chart Type Minimum Number of Series Maximum Number of Series Number of Y Values Required
Area Charts 1 Unlimited 1
Bar Charts 1 Unlimited 1
Box And Whisker Charts 1 Unlimited 5
Bubble Charts 1 Unlimited 2
Candle Charts 1 Unlimited 4
Column Charts 1 Unlimited 1
Column Range Charts 1 Unlimited 2
Combination Charts 2 Unlimited 1
Funnel Charts 1 1 1
Gantt Charts 1 Unlimited 2
Hi Lo Charts 1 Unlimited 4
Hi Lo Open Close Charts 1 Unlimited 4
Histogram Charts 1 Unlimited 1
Kagi Charts 1 Unlimited 1
Line Charts 1 Unlimited 1
Pie Charts 1 1 1
Point And Figure Charts 1 Unlimited 2
Polar Charts 1 Unlimited 1
Pyramid Charts 1 1 1
Radar Charts 1 Unlimited 1
Renko Charts 1 Unlimited 1
Rotated Spline Charts 1 Unlimited 1
Scatter Charts 1 Unlimited 1
Spline Area Charts 1 Unlimited 1
Spline Charts 1 Unlimited 1
Stacking Area Charts 2 Unlimited 1
Stacking Bar Charts 2 Unlimited 1
Stacking Column Charts 2 Unlimited 1
Step Area Charts 1 Unlimited 1
Step Line Charts 1 Unlimited 1
Three Line Break Charts 1 Unlimited 1
Tornado Charts 1 Unlimited 2

Line Charts

Line charts typically use a line to connect the different data points in a series. Such lines are straight, splines or steps. Line charts are simpler and hence also let you visualize multiple series without overlapping like in a bar chart.

Here are the different types of Line Charts.

Line Chart

Line Charts join points on a plot using straight lines showing trends in data at equal intervals. Line charts treat the input as non-numeric, categorical information, equally spaced along the x-axis. This is appropriate for categorical data, such as text labels, but can produce unexpected results when the X values consist of numbers.

When rendered in 3D, the plot looks like a ribbon and hence such types are also referred to as Ribbon or Strip Charts.

The appearance of the lines and the points can be configured with options such as the colors used, thickness of the lines and the symbols displayed.

How to make the four basic chart types

Chart Details

Number of Y values per point – 1.

Number of Series – One or More.

Cannot be Combined with – Pie, Bar, Stacked Bar, Polar, Radar.

Line series can be added to the chart using the following code.

With the strong trends exhibited by stocks, swing trading has become increasingly popular among traders. In fact, the swing chart is the most common technique used to identify trends.

In this article, we look at how to draw swing charts and, more importantly, how to use them to profit.

Key Takeaways

  • Swing trading is a style of trading that attempts to capture gains in an a security over a period of a few days to several weeks based on changes in momentum.
  • Technical analysts can use charting techniques to identify potential entry and exit points for a swing trade.
  • Swing charts can be constructed by identifying near-term highs and lows that have occurred to identify trends.

Why Use Swing Charting?

Swing charts are extremely useful tools for technical analysis, and here are some reasons why this technique is so popular:

  • Swing charts show nothing but trends, greatly simplifying the process of locating them. Remember, trends are the primary means to profit in any market!
  • Swing charts exhibit less market “noise,” which can help you more accurately apply other forms of technical analysis that aren’t time sensitive.
  • There are several variations of this technique—such as Kagi charts and Gann-based swing charts—that offer a more complex way to locate trends. These techniques also offer the option of making many empirical changes to further enhance trend-finding abilities.

Constructing a Swing Chart

Swing charts, in their most basic form, are composed of price bars, which represent price behavior during a given time.

Here is a simple bar chart we will reference throughout this article:

How to make the four basic chart types

Most technical traders have probably seen a bar chart, as it is the most common type of chart. The vertical lines represent the price range, the left peg represents the opening price and the right peg represents the closing price during a given time period.

There are many different ways to construct a swing chart using highs and lows. For this article, we will focus on the popular and effective Gann swing charting method. Here are the four basic turning points in this type of chart:

  • Up day: Higher high and higher low (green).
  • Down day: Lower high and lower low (red).
  • Inside day: Lower high and high low (black).
  • Outside day: Higher high and lower low (blue).

Here is the same bar chart as above, classifying every bar as one of the four turning points:

How to make the four basic chart types

We have now identified the beginnings and ends of several trends using the four different turning points. To construct the swing chart, we must remove time as a factor and instead focus solely on price action. To do this, we must find two points:

  • Up day that is followed by a down day.
  • Down day that is followed by an up day.

How to make the four basic chart types

These two points indicate when a trend begins or ends and, as such, a time to enter or exit a swing trade. Now that we have marked these points, we can construct the actual swing chart. To do this, we first eliminate the time factor by moving the points together in equal intervals while maintaining the order. After this, simply connect all the points to complete the chart. The end product should look something like this:

How to make the four basic chart types

Notice that the time factor has completely disappeared, and it is significantly easier to see price trends.

Using Swing Charts

Swing charts can be used in a variety of ways:

  • To easily view the overall trend of a market or equity: Trends can be discerned by simply looking for progressively higher highs and lows (which form a stair-like pattern) or by drawing trendlines.
  • To easily position “stop-loss” and “take profit” points: Previous highs can be used as take-profit points, and previous “step” bottoms throughout a trend can be used as moving stop-loss points.
  • To apply technical analysis techniques that are not time sensitive: For example, Fibonacci levels can be calculated, or Elliott Waves can be applied. These can often help you predict where prices are headed, or can help you place more effective take-profit and stop-loss levels.
  • To create price channels: These can be developed by connecting consecutive highs and consecutive lows. This can help predict prices, place moving take-profit and stop-loss points, or help you liquidate or add to a position in a timely manner. Placing lines that connect highs to highs and another line connecting lows to lows creates a channel through which the price moves.

The Bottom Line

Swing charts offer an easier way to view trends by removing market noise and the time factor. They can be used in conjunction with several forms of technical analysis to obtain more accurate predictions and take-profit and stop-loss points. There is an old market adage: “The trend is your friend.” Swing charts can help you find it.

Communicating your study’s results to your co-workers, managers, and clients in a way that is both professional and easy to understand is a crucial skill for any researcher.

Many studies with amazing results are not acted on or fall to the wayside because of its confusing report. In a report, charts go a long way in illustrating findings that are clear and concise.

The main challenge with using charts is selecting the correct type from the wide variety available. Many people do not understand the strengths and weaknesses that come with survey chart types, either deciding off the cuff which looks the nicest or staying in their comfort zone by overloading their report with pie or vertical bar charts. It is important for researchers to use the most effective chart to display their data results. This article will go over six basic charts and how to successfully implement them into your reports. Let’s get started!

1) Vertical bar charts

How to make the four basic chart types

Vertical bar charts are best for comparing means or percentages between 2 to 7 different groups. As you can see, each bar is separated by blank space. For this reason, the x-axis should be based on a scale that has mutually exclusive categories (like multiple choice, or check box questions). Categories that are based on a continuous scale are better suited for a histogram, but we will look at those later. As for this chart, respondents were only able to select one distinct option (daily, weekly…) making its cross analysis with happiness perfect for a vertical bar chart.

With the strong trends exhibited by stocks, swing trading has become increasingly popular among traders. In fact, the swing chart is the most common technique used to identify trends.

In this article, we look at how to draw swing charts and, more importantly, how to use them to profit.

Key Takeaways

  • Swing trading is a style of trading that attempts to capture gains in an a security over a period of a few days to several weeks based on changes in momentum.
  • Technical analysts can use charting techniques to identify potential entry and exit points for a swing trade.
  • Swing charts can be constructed by identifying near-term highs and lows that have occurred to identify trends.

Why Use Swing Charting?

Swing charts are extremely useful tools for technical analysis, and here are some reasons why this technique is so popular:

  • Swing charts show nothing but trends, greatly simplifying the process of locating them. Remember, trends are the primary means to profit in any market!
  • Swing charts exhibit less market “noise,” which can help you more accurately apply other forms of technical analysis that aren’t time sensitive.
  • There are several variations of this technique—such as Kagi charts and Gann-based swing charts—that offer a more complex way to locate trends. These techniques also offer the option of making many empirical changes to further enhance trend-finding abilities.

Constructing a Swing Chart

Swing charts, in their most basic form, are composed of price bars, which represent price behavior during a given time.

Here is a simple bar chart we will reference throughout this article:

How to make the four basic chart types

Most technical traders have probably seen a bar chart, as it is the most common type of chart. The vertical lines represent the price range, the left peg represents the opening price and the right peg represents the closing price during a given time period.

There are many different ways to construct a swing chart using highs and lows. For this article, we will focus on the popular and effective Gann swing charting method. Here are the four basic turning points in this type of chart:

  • Up day: Higher high and higher low (green).
  • Down day: Lower high and lower low (red).
  • Inside day: Lower high and high low (black).
  • Outside day: Higher high and lower low (blue).

Here is the same bar chart as above, classifying every bar as one of the four turning points:

How to make the four basic chart types

We have now identified the beginnings and ends of several trends using the four different turning points. To construct the swing chart, we must remove time as a factor and instead focus solely on price action. To do this, we must find two points:

  • Up day that is followed by a down day.
  • Down day that is followed by an up day.

How to make the four basic chart types

These two points indicate when a trend begins or ends and, as such, a time to enter or exit a swing trade. Now that we have marked these points, we can construct the actual swing chart. To do this, we first eliminate the time factor by moving the points together in equal intervals while maintaining the order. After this, simply connect all the points to complete the chart. The end product should look something like this:

How to make the four basic chart types

Notice that the time factor has completely disappeared, and it is significantly easier to see price trends.

Using Swing Charts

Swing charts can be used in a variety of ways:

  • To easily view the overall trend of a market or equity: Trends can be discerned by simply looking for progressively higher highs and lows (which form a stair-like pattern) or by drawing trendlines.
  • To easily position “stop-loss” and “take profit” points: Previous highs can be used as take-profit points, and previous “step” bottoms throughout a trend can be used as moving stop-loss points.
  • To apply technical analysis techniques that are not time sensitive: For example, Fibonacci levels can be calculated, or Elliott Waves can be applied. These can often help you predict where prices are headed, or can help you place more effective take-profit and stop-loss levels.
  • To create price channels: These can be developed by connecting consecutive highs and consecutive lows. This can help predict prices, place moving take-profit and stop-loss points, or help you liquidate or add to a position in a timely manner. Placing lines that connect highs to highs and another line connecting lows to lows creates a channel through which the price moves.

The Bottom Line

Swing charts offer an easier way to view trends by removing market noise and the time factor. They can be used in conjunction with several forms of technical analysis to obtain more accurate predictions and take-profit and stop-loss points. There is an old market adage: “The trend is your friend.” Swing charts can help you find it.

Written by co-founder Kasper Langmann, Microsoft Office Specialist.

A bar graph is one of the simplest visuals you can make in Excel. But it’s also one of the most useful.

While the amount of data that you can present is limited, there’s nothing clearer than a simple bar chart.

We’ll look at a few different types of bar charts, talk about when you should use each one, and walk through creating a chart.

Let’s get started!

*This tutorial is for Excel 2019/Microsoft 365 (for Windows). Got a different version? No problem, you can still follow the exact same steps.

Table of Contents

Why use a bar chart?

Of the many charts and graphs in Excel, the bar chart is one that you should be using often. But why?

Here are three things that make bar charts a go-to chart type:

1. They’re easy to make.

When your data is straightforward, designing and customizing a bar chart is as simple as clicking a few buttons.

There aren’t many options, you don’t need to organize your data in a complicated way, and Excel is good at extracting your headings and data.

2. They’re easy to understand.

No matter your audience, they won’t have any trouble interpreting your chart. Some charts require interpretation skills, but bar charts are as simple as they come.

And that’s good for everyone.

3. They can display long category titles.

Some charts make it difficult to display categories that are more than a couple words long.

Bar charts, as we’ll see in a moment, have room for longer titles. It might not seem like much, but it can really make a difference!

4. They’re versatile.

With clustered and stacked options, bar charts can display a variety of data types.

For these reasons, bar charts are almost always a good choice.

However, there are a few cases in which you might not want to use a bar chart. For example, if you’re trying to show proportions, a stacked bar chart will work, but a pie chart will be better.

And if you want to show change over time, a line graph will be best. (Though you can use a stacked bar chart to make a Gantt chart.)

Now, let’s take a look at how to make a bar chart in Excel.

Get your FREE exercise file

If you’d like to use the same data that we do to follow along and create your own bar charts, feel free to download our example workbook.

By How to make the four basic chart typesJeevan A Y | Reviewed By How to make the four basic chart typesDheeraj Vaidya, CFA, FRM

What is Comparison Chart in Excel?

When the important decision needs to be made, you may want to have a look at the region-wise sales, city-wise sales, or any other category-wise sales values. Reading values from table summary is not a quick option because looking at numbers against each other categories taken good enough time, so instead of showing the table summary alone, we can show those numbers in charts, and that chart is called “Comparison Chart”.

How to make the four basic chart types

How to Create a Comparison Chart in Excel? (with Examples)

Above is the State-wise and City-wise sales values. When we look at the data, we have the same state for two cities. For example, for the state “California,” we have “Los Aneles & San Francisco” cities; to compare these two cities’ values against each other in the same city, we need to create a comparison chart in excel.

Follow the below steps to create a comparison chart in excel.

  • Step 1: Copy the above table data to excel.

How to make the four basic chart types

  • Step 2: Select the data and insert “Column Chart” in excel.

How to make the four basic chart types

  • Step 3: Now, we have a default chart like the below one.

How to make the four basic chart types

This isn’t the clear comparison chart yet; to make it clear, we need to modify the data slightly.

  • Step 4: Since we have the same state name for multiple cities, let’s merge state values into one cell.

How to make the four basic chart types

Now, look at the chart.

How to make the four basic chart types

As you can see on the horizontal axis, we can see only one state name for multiple cities, unlike the previous one of having state names for all the cities.

We need to still make it clear by adding space between each state.

  • Step 5: A simple technique can add the space between each state. After every state name, inserts a blank row.

How to make the four basic chart types

Now, look at the chart.

How to make the four basic chart types

From the above chart, we can clearly compare city-wise sales in the same state. By adding an extra empty row, we can make this difference.

How to make the four basic chart types

Use Combo Chart as Comparison Chart in Excel

Above is one way of comparing values in the same category; similarly, we can use “Combo Chart” to compare values as well. For example, look at the below data.

How to make the four basic chart types

Insert column chart for this data by copying the data to excel worksheet. When the column chart is inserted, we can have a chart like the below one.

How to make the four basic chart types

This is the general way of creating a column chart. But making the “Profit” column bar as the different chart, we can actually compare things even better.

Select the chart, and we can see two extra tabs in the ribbon, i.e., “Design & Format.”

How to make the four basic chart types

From the “Design” tab, click on “Change Chart Type.”

How to make the four basic chart types

Now it will open up the “Change Chart Type” window.

How to make the four basic chart types

Click on the “Combo” option at the bottom.

How to make the four basic chart types

When you select the “Combo” option, we can see combination chart types; at the bottom, we can see the chart type for each series.

How to make the four basic chart types

For the “Profit” column, select the chart type as “Line” and make it as “Secondary Axis.”

How to make the four basic chart types

Now click on “Ok” we will have a comparison chart ready with two different charts.

How to make the four basic chart types

As you can see above, we have two vertical axes, one on the right side and one on the left side of the chart.

How to make the four basic chart types

The right side vertical axis is for column chart bars, and the left side vertical axis is for the line chart. From the above chart, we can see for the month of “May” revenue is 15000 and the cost is 11000, but profit is 4000, so this shows that when compared to other months, this month profit values are more.

Things to Remember

  • The excel comparison chart is to compare the multiple subcategory values under one main category.
  • A combo chart in excel is best suited to compare values.
  • Always have a secondary axis for a combo chart to read better.

Recommended Articles

This has been a guide to Comparison Chart in Excel. Here we learn how to create a comparison chart in excel and along with examples and a downloadable excel template. You may learn more about excel from the following articles –

Flowchart
  • Create Flowchart
  • Create Workflow Diagram
  • Create BPMN
  • Create Swimlane Diagram
  • Create SOP
  • Create IDEF0 Diagram
  • Create SDL Diagram
  • Flowchart Symbols
  • Workflow Diagram Symbols
  • BPMN Symbols
  • Data Flow Diagram Symbols
  • Cross-Functional Flowchart Symbols
  • Algorithm and Flowchart
  • Flowchart Examples for Students

How to make the four basic chart types

  • Part1: Guidelines for Drawing a Flowchart
  • Part2: How to Draw an Effective Flowchart
  • Part3: Software for Drawing Professional-looking Flowchart
  • Part4: How to Draw a Flowchart

Are you confused about how to draw a flow chart? Here are some guidelines and tips that can be used to simplify the process of creating a high-quality flowchart.

Use a flowchart maker to create a high-quality flowchart. This tutorial covers everything you need to consider about drawing flowcharts. Let’s just begin!

Part1: Guidelines for Drawing a Flowchart

Honestly, there is no shortcut to making flowcharts, but there are several guidelines that will help you learn how to make flowcharts.

  1. Agree on a standard flowchart symbol set to use. Alternatively, a company standard may be available. It is important to agree a standard as there are several conflicting common uses.
  2. Draw a start terminator box at the top of the work area.
  3. Add the first box below the start box, identifying the first action simply by asking, “What happens first?”. Add an appropriate box around it.
  4. Add subsequent boxes below the previous box, identifying each action by asking, “What happens next?”. Draw an arrow from the previous box to this one.
  5. Describe the process to be charted.
  6. Start with a “trigger” event.
  7. Note each successive action concisely and clearly.
  8. Go with the main flow (put extra details in other charts).
  9. Make cross references to support information
  10. Gather the team who are to work on describing the process. These should include people who are intimately involved in all parts of the process, to ensure that it gets described as it actually happens, rather than an idealized view.
  11. Follow the process through to a useful conclusion (end at a “target” point).
  12. If the final diagram is to be used as a part of a formal system, make sure that it is uniquely identified

Part2: How to Draw a Useful Flowchart

It will help if you consider a few things when drawing a useful flowchart. Check out a simple flowchart guide before you start.

  1. Define the process boundaries with starting and ending points.
  2. Complete the big picture before filling in the details.
  3. Clearly define each step in the process. Be accurate and honest.
  4. Identify time lags and non-value-adding steps.
  5. Circulate the flowchart to other people involved in the process to get their comments.

Flowcharts don’t work if they’re not accurate or if the team is too far away from the process itself. Team members should be real participants in the process and feel free to describe what really happens. A thorough flowchart should provide a clear view of how a process works. With a completed flowchart, you can:

  1. Identify time lags and non-value-adding steps.
  2. Identify responsibility for each step.
  3. Brainstorm for problems in the process.
  4. Determine major and minor inputs into the process with a cause and effect diagram.
  5. Choose the most likely trouble spots with the consensus builder.

Part3: Software for Drawing Professional-looking Flowchart

With the flowchart software,it’s easier to design a professional-looking flowchart. You don’t need to take care of the drawing skill. Actually, all you have to do is understand the whole process flowchart. Edraw flowchart software can help you quickly create new flowcharts, workflow, NS Diagram, BPMN Diagram, Cross-functional flowcharts, data flow diagrams and highlight flowcharts. See how to use Edraw to create a basic flowchart.

Part4: How to Draw a Flowchart

Most of us do not know how to deal with flowcharts when we are novices. However, practice makes perfect. A good flowchart helps to understand the systematic flow of information in the system. If a flow chart is not created properly, it may mislead the designer of the system or may result in fatigue consequences. Therefore, it is very important that you create flowcharts carefully. I would always suggest you to use flowchart to make the process of a system and its flow easy to understand.

Although there are many symbols that can be used in flowcharts to represent different kinds of steps, accurate flowcharts can be created using very few of them (e.g. Process, Decision, Start, delay, cloud).

The basic element of a flowchart is a simple action, which can be anything from striking an anvil to make a cash payment, and is represented by a box containing a description of the action. The mapping of “what follows what” is shown with arrows between sequential action boxes, as shown in the illustration. This also shows the boxes for flowchart’s start and end points in which there are normally one for each.

How to make the four basic chart types

Processes become more complex when decisions must be made, on which an alternative set of actions must be taken. The decision is shown in a flowchart like a diamond-shaped box containing a simple question to which the answer is “yes” or “no” as shown in Fig. 2. More complex decisions are made up of combinations of simple decision boxes.

How to make the four basic chart types

Fig. 2. Decisions in Flowcharts

Processes often go wrong around decisions, as either the wrong question is being asked or the wrong answer is being given.

Where boxes cannot be directly connected with lines, the separated lines are coordinated with connector boxes containing matching names. This typically occurs where lines cross onto another page as shown in the illustration.

How to make the four basic chart types

Fig. 3. Continuing Flowcharts across pages

By using multiple connector boxes, it is very easy for flowcharts to become very complex to understand. In terms of size, A one-page flowchart is perfect.

Large processes can be broken down into a hierarchical set of smaller flowcharts by representing a lower level process as a single sub-process box. This behaves like a normal action box at the higher level, but can be “zoomed into” to expose another flowchart, as shown in Fig. 4.

How to make the four basic chart types

When dealing with investments, it’s essential to understand the different asset classes and which investments fall into each. An asset class is a collection of investments that share similarities—including how they behave in the marketplace, the purchasing process, and how the government regulates them. Historically, there have been three primary asset classes, but today financial professionals generally agree that there are four broad classes of assets:

  • Equities (stocks)
  • Fixed-income and debt (bonds)
  • Money market and cash equivalents
  • Real estate and tangible assets

If your portfolio includes investments spread across the four asset classes, it’s considered balanced—which is ideal because it helps to reduce risk while maximizing return. If your portfolio is particularly heavy in one sector and that sector underperforms for some reason, you could be in trouble. If your portfolio is spread out relatively evenly and just one asset class experiences difficulties, you should still have the others performing adequately enough to pull you through the crisis.  

Equities

Equity represents ownership. When you purchase shares in a company, you’re purchasing ownership in that company. For example, if Company ABC has 100,000 shares and you buy 1,000, you will own 1% of Company ABC. As part-owner, you have rights to a portion of a company’s profits, and these are usually paid out to investors in the form of a dividend. The dividend amount varies by company, and some companies may choose to use the dividends to reinvest back into the company for growth.

Although stocks are lumped together, the same investing principles should not apply to them as a whole. For example, investing in a hyper-growth startup is very different from investing in a blue-chip stock that’s been around for decades.

Fixed-Income and Debt

Whenever you purchase an institution’s bonds, you’re essentially lending them money—which is why they represent debt. In return for this loan, the institution promises to pay interest on the loan in the form of periodic payments. These interest payments are paid to bondholders throughout the life of the bond, and the principal is returned at the end of the term (referred to as the maturity date). For example, if you buy a $1,000 5-year bond with an annual interest rate of 2%, you’ll receive biannual payments of $10.

Money Market and Cash

Cash is any money in the form of currency, both local and foreign. This can include physical bills and coins and the cash you have in your bank accounts. Cash equivalents, like money market holdings, are highly liquid investments that can readily be converted into cash—usually within 90 days or less. Unlike stocks and other assets, cash equivalents must have a determined market price that doesn’t fluctuate.

Real Estate and Tangible Assets

Tangible assets—ones you can physically see and touch—are grouped into their own asset class. Real estate is the most common type of tangible assets that people own, but commodities, like gold and livestock, also fall into this category. Generally, these types of assets can withstand periods of inflation.

Use All Four Classes

The purpose of having all four asset classes represented in your portfolio is not only to prevent investment downfalls but also to take advantage of the different strengths of each class. The whole theory of asset allocation is based on diversifying your portfolio by asset class; you never want to find yourself in a situation where your portfolio is reliant on one asset class to carry the weight. Stocks give you a chance for higher returns, but they also come with more risk; bonds don’t offer substantial gains, but they’re one of the safer investment options. It’s on you to find out which combination of assets makes the most sense for you.  

The younger you are, the more aggressive your portfolio should be. As you get closer to retirement, your portfolio should get more conservative because you don’t have as much time to rebound in the event of a market downfall.

The Bottom Line

A portfolio that contains only one or two asset classes is not diversified and may not be prepared to take advantage of all the swings the market can throw at you. But diversification—or at least the degree to which you diversify—is also an individual decision that depends to some extent on your goals and risk tolerance.

If you’re particularly risk-averse, you might want to diversify even more or make sure you’re further diversified within each class, allowing for minor differences within that class. If you have nerves of steel and you’re lucky enough to have money to burn, you might not want to rely on diversification quite as much but ride the trends of the market instead.