Every investment comes with different characteristics. Asset Allocation insulates portfolios from the volatility of a single investment through diversification. Even for very conservative investors who may be tempted to avoid stocks, some exposure to stocks can help maximize returns as well as offset inflation. Every investment portfolio should have some stocks/aggressive growth no matter their risk profile, age, or goals to provide a balanced portfolio that provides for growth or as an inflationary hedge. Below are three case studies of how investors use equities/stocks/aggressive growth in their portfolios.
An example of return profiles across asset classes comes from the $53.2 billion Harvard University Endowment, which has one of the best endowment investment teams. In looking at Harvard’s asset allocation over the past two years, it becomes clear that public equities are a critical driver in wealth creation for the portfolio – generating double-digit returns each year. Private equity also generated significant returns; however, private equity deals can be difficult to source and are much less liquid than public equities. Compared to the average investor, Harvard has a significant advantage in sourcing deals given its brand recognition and the large investment team that they employ. Each year, hedge funds come in third on the list, but in both cases, returns for this class are notably lower than public and private equity.
Let’s look at Fidelity’s product “Fidelity Fund Portfolios—Diversified”. For individual investors, returns are generated by stocks in a traditional stock/bond portfolio. Fidelity allocates 85% to stocks to achieve the highest possible returns in its aggressive growth portfolio, but even in the most conservative portfolio, 20% of assets are allocated to stocks.
When compared to the endowment model, Fidelity portfolios consist only of stocks and bonds. Endowments diversify their return drivers with a mix of public equities, private equity, hedge funds, and real estate. These categories combined average approximately 80%, which is comparable to Fidelity's aggressive growth approach. Allocation to private equity, hedge funds, and real estate can be harder for most investors to access.
Teachers' Retirement System, the largest pension plan in the United States, allocates assets using The TRS Diversification Framework “to provide a long-term, risk-adjusted return through all economic and market environments.”
The Framework groups assets into multiple portfolios, each designed to perform well in a different economic environment. “Global Equity” represents the majority of Trust assets at 54%, and consists of public equities (30%) and private equity (14%). “Stable Value” includes treasuries (16%) and hedge funds (5%) and “Real Return” consists of real estate (15%) and energy, natural resources, and infrastructure (6%). Again, public equities play a central role in terms of portfolio construction for wealth creation.
Every investment comes with different characteristics. Asset Allocation insulates portfolios from the volatility of a single investment through diversification. Even for very conservative investors who may be tempted to avoid stocks, some exposure to stocks can help maximize returns as well as offset inflation. Every investment portfolio should have some stocks/aggressive growth no matter their risk profile, age, or goals to provide a balanced portfolio that provides for growth or as an inflationary hedge. Below are three case studies of how investors use equities/stocks/aggressive growth in their portfolios.
An example of return profiles across asset classes comes from the $53.2 billion Harvard University Endowment, which has one of the best endowment investment teams. In looking at Harvard’s asset allocation over the past two years, it becomes clear that public equities are a critical driver in wealth creation for the portfolio – generating double-digit returns each year. Private equity also generated significant returns; however, private equity deals can be difficult to source and are much less liquid than public equities. Compared to the average investor, Harvard has a significant advantage in sourcing deals given its brand recognition and the large investment team that they employ. Each year, hedge funds come in third on the list, but in both cases, returns for this class are notably lower than public and private equity.
Let’s look at Fidelity’s product “Fidelity Fund Portfolios—Diversified”. For individual investors, returns are generated by stocks in a traditional stock/bond portfolio. Fidelity allocates 85% to stocks to achieve the highest possible returns in its aggressive growth portfolio, but even in the most conservative portfolio, 20% of assets are allocated to stocks.
When compared to the endowment model, Fidelity portfolios consist only of stocks and bonds. Endowments diversify their return drivers with a mix of public equities, private equity, hedge funds, and real estate. These categories combined average approximately 80%, which is comparable to Fidelity's aggressive growth approach. Allocation to private equity, hedge funds, and real estate can be harder for most investors to access.
Teachers' Retirement System, the largest pension plan in the United States, allocates assets using The TRS Diversification Framework “to provide a long-term, risk-adjusted return through all economic and market environments.”
The Framework groups assets into multiple portfolios, each designed to perform well in a different economic environment. “Global Equity” represents the majority of Trust assets at 54%, and consists of public equities (30%) and private equity (14%). “Stable Value” includes treasuries (16%) and hedge funds (5%) and “Real Return” consists of real estate (15%) and energy, natural resources, and infrastructure (6%). Again, public equities play a central role in terms of portfolio construction for wealth creation.
Manager of the Golden Eagle Growth Strategy
