An asset class is a group of securities or other instruments that share similar characteristics, behave similarly in the marketplace, and are subject to the same regulations. Some of the asset classes most widely used by investors are equities (stocks), fixed-income (bonds), money market instruments, commodities and real estate.
Asset allocation strategy in a portfolio usually includes efforts to maintain a balance between the various classes.  Spreading investment selections across several asset classes is known as diversification, and is used to help increase total return.
Each asset class is expected to reflect different risk and return investment characteristics, and will perform differently in any given market environment.
The asset classes used the most in personal financial planning are equities and fixed incomes, but other asset classes used for investing include commodities, real estate, antiques, and collectibles.
Asset classes should not be confused with asset class categories. "Large-cap stocks" or "short-term bonds" are not asset classes; they are asset class categories, used for portfolio diversification. Fixed incomes can be divided between bonds, preferred stocks, CDs, etc. Bonds can be subclassified by corporate or municipal, by maturity (long, intermediate, short), by bond rating (investment grade or junk bond), etc.