Typically refers to securities that have similar features. For example, stocks and bonds are the two main classes. They may be subdivided into other classes such as mortgages, common stock and preferred stock. Asset classes are used in the process of asset allocation to control the risk and return characteristics of a portfolio. The predictions for asset class performance are based on historical performance characteristics, which include the expected future return, the expected future volatility (risk) of the return, and how the returns of assets classes perform relative to each other. In the long run, with a diversified portfolio, over 90 percent of your returns as an investor are determined by the class of assets you decide to hold. The remaining 10 percent of your return depends on which specific stock, bond or mutual fund you buy and when you buy it.