What asset classes and when?

Today’s world of “traditional investments” is anything but, traditional. Stocks, bonds, and money market investments are the traditional staples of an investment management plan. The important components of a plan restricted to these investments include (1) Asset Allocation, (2) Style (growth, value, income, capitalization size, domestic/international) (3) Quality (bonds or stocks), (4) Liquidity, (5) Risk (principal risk, liquidity risk, buying power risk), and (6) Correlation (tendency to move in tandem). By considering these issues and having a plan for them, one can make the outcomes of the investment process more predictable.

There is no return without taking risk, but knowing what risks are being assumed is important. There are no guarantees in the investment world because some type of risk is taken no matter what one does with their accumulated wealth. There is risk even if one doesn’t invest, just as putting money under the mattress carries risk of theft, and money in a U.S. Treasury security, while the risk is minimal, can risk not reaching the financial goals because the returns are too low. Defining the risks that are reasonable and fall within the expectations of each client should be part of the investment process.

As the investment world becomes more complex, traditional investments have been divided into sub groups. For instance, stocks or equity can be divided into large-cap, mid-cap, and small-cap referring to their capitalization size or firm-wide market value. They can be divided between domestic and foreign and Private versus Public. Within the category of foreign investments, stocks can be allocated between “developed” markets or “emerging” markets in reference to the established countries versus emerging economies, including the currency influences of various countries.

There is really nothing simple about “traditional” investments and one quickly realizes that with a broad perspective, they include much of the investment universe even today. We can help with a plan to allocate to these asset classes and expand the knowledge and use of them in ways that improve diversification and lower various kinds of risk.