Understanding Asset Classes

90% of investment returns are determined by your asset allocation.

Core Asset Classes
	Returns	Inflation	Alignment	Characteristics
Domestic Equities	Highest over time	No protection short term, some long term protection	Somewhat aligned with company management, investment fees	Liquid, regulated, diversified
Foreign Equities	Same as domestic with currency fluctuation	No protection short term, some long term protection	Same plus political risk	Same with less governance
Emerging Market Equities	Higher risk, return, volatility	No protection short term, some long term protection	Same plus political and governance risk	Small, less liquid, less governance
US Treasuries	Interest and principle guaranteed (if held to maturity)	The longer the term, the greater the erosion of interest and principle returns, plus principle risk	No conflict (government has reason to inflate slowly	Large liquid market
TIPS	Interest and principle tied to inflation and guaranteed if held to maturity	Best hedge against inflation	Same	Same with less liquidity
Real Estate	Higher return than bonds, lower than equities	Good long term hedge against inflation	Same as equities with higher fees	Less liquid and less diversified than domestic equities