Understanding Asset Classes

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

Core
Asset
Classes
ReturnsInflationAlignmentCharacteristics

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





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