Equity Investing

Equity is used to maximize expected returns. It is the most appropriate place to allocate any portfolio risk being taken. Broad diversification within and across asset classes is key.

The equity asset class can be subdivided among component asset classes including: small-cap, value, large-cap and growth — both domestic and international.

Why are we concerned with these component asset classes? Characteristics distinct to each equity asset class have been observed over many years in rigorous academic inquiry, as well as within practical applications to prudent investment strategies (including our own). Each has displayed its own degree of expected risk, and thus expected return.

In addition to taking advantage of the high expected returns attainable in the U.S. equity markets, we typically advise that a portfolio be allocated to international equity markets. 

By investing a portion of a portfolio in international equity, investors can participate in the growth of the whole global economy, while pursuing increased diversification. 

By diversifying internationally, investors can lower the volatility of their portfolio by combining asset classes with low correlation, while still enjoying the higher expected returns of the equity markets.

A globally diversified portfolio may also include a small portion in emerging markets. In today’s world of equity investing, we are seeing a great deal of growth in emerging markets. The growth rates in these markets have been significantly greater at times than the rate of growth found in established markets.

Research indicates that a very small position in emerging markets can increase the expected return of the portfolio without increasing overall portfolio volatility. In fact, because of the low correlation between the emerging market asset class and the other asset classes, overall portfolio volatility can be reduced.

To minimize the risk of investing in the inherently riskier asset class of emerging markets, we choose funds that have stringent selection criteria and appropriate countries to include in this asset class. 

If you would like to talk to a Pile Wealth Advisor about customized wealth management strategies that can help you reach your financial goals, please call us at (888) 513-3454 and ask to speak to Neal Clements.