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Whitaker-Myers Wealth Managers is an SEC-registered investment adviser firm. The information presented is for educational purposes only and intended for a broad audience. The information does not intend to make an offer or solicitation to sell or purchase any specific securities, investments, or investment strategies. Investments involve risk and are not guaranteed. Whitaker-Myers Wealth Managers reasonably believes that this marketing does not include any false or misleading statements or omissions of facts regarding services, investment, or client experience. Whitaker-Myers Wealth Managers has a reasonable belief that the content will not cause an untrue or misleading implication regarding the adviser’s services, investments, or client experiences. Please refer to the firm’s ADV Part 2A for material risks disclosures.

Past performance of specific investment advice should not be relied upon without knowledge of certain circumstances of market events, the nature and timing of the investments, and relevant constraints of the investment. Whitaker-Myers Wealth Managers has presented information in a fair and balanced manner.

Copyright (c) 2023 Clearnomics, Inc. and Whitaker-Myers Wealth Managers, LTD. All rights reserved. The information contained herein has been obtained from sources believed to be reliable, but is not necessarily complete and its accuracy cannot be guaranteed. No representation or warranty, express or implied, is made as to the fairness, accuracy, completeness, or correctness of the information and opinions contained herein. The views and the other information provided are subject to change without notice. All reports posted on or via www.clearnomics.com or any affiliated websites, applications, or services are issued without regard to the specific investment objectives, financial situation, or particular needs of any specific recipient and are not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. Past performance is not necessarily a guide to future results. Company fundamentals and earnings may be mentioned occasionally, but should not be construed as a recommendation to buy, sell, or hold the company's stock. Predictions, forecasts, and estimates for any and all markets should not be construed as recommendations to buy, sell, or hold any security--including mutual funds, futures contracts, and exchange traded funds, or any similar instruments. The text, images, and other materials contained or displayed in this report are proprietary to Clearnomics, Inc. and constitute valuable intellectual property. All unauthorized reproduction or other use of material from Clearnomics, Inc. shall be deemed willful infringement(s) of this copyright and other proprietary and intellectual property rights, including but not limited to, rights of privacy. Clearnomics, Inc. expressly reserves all rights in connection with its intellectual property, including without limitation the right to block the transfer of its products and services and/or to track usage thereof, through electronic tracking technology, and all other lawful means, now known or hereafter devised. Clearnomics, Inc. reserves the right, without further notice, to pursue to the fullest extent allowed by the law any and all criminal and civil remedies for the violation of its rights.

  • Summit Puri

Asset Classes: Understanding your investments

Asset Classes


Asset Classes, are they like Pilates at 9 am on Thursday?

 

For those of you who have a background in science, like me, the chart below may look like a funky periodic table or oddly organized Scrabble board at first glance. Today, instead of discussing molecular weight, reactivity, or how to get the best triple-double combo for the most points, we will delve deep into the 4 investment categories that Dave Ramsey recommends investing in. This will include a quick introduction to some subcategories, which we’ll dissect in a future post.

 

A quick note before diving in: Remember the term ‘fund’ is a group of stocks and other assets vs. a single stock, which refers to one publicly traded entity (company, commodity, etc.). Also, Asset classes are a group of investments with similar characteristics and are regulated similarly. 

Dave’s 4 Categories for Investing

Dave Ramsey’s recommended 4 categories for investment include Growth, Growth and Income, Aggressive growth, and International. The goal of these categories is to provide even diversification. His recommendation is to allot 25% to each category. While this strategy may meet your investing needs at a high level, we hope to educate you on the why behind each fund within the designated categories. Understanding the turnover rate, costs associated with the fund, and potential tax implications are all key components to consider when selecting your funds. Investing can be risky, but creating a well-diversified portfolio can hedge the potential risk. Hedging is NOT having the most well-groomed boxwood evergreens in the neighborhood! Hedging (in investing) is “a risk management strategy employed to offset losses in investments by taking an opposite position in a related asset” (Investopedia.com). For example, having assets in cash or international funds could ‘hedge’ against a loss within other categories. The complete or balanced portfolio should align with your risk tolerance and the time horizon you have for your investments and goals.  Let’s dive deeper into the categories and define them a bit better.

 

Growth Funds

Fun fact: Growth funds or large-CAP growth funds have no association with how tall your child is or what size baseball hat they wear. However, they can contribute to your children’s future and may enable you to purchase that fancy new baseball hat!

 

Growth funds or large market capitalization (‘large-cap’) funds are companies or groups of companies that have a market capitalization value >$10 Billion. “Market capitalization is calculated by multiplying the number of a company’s shares outstanding by its stock price per share” (Investopedia.com). Growth stocks or funds include many of the largest companies you’re likely familiar with. Companies such as Apple (APPL), Microsoft (MSFT), Amazon (AMZN), Meta (META), Tesla (TLSA), and many others. These companies have been significant drivers of the overall market and have played a significant role in driving not only the U.S. economy but also economies globally. They tend to be relatively stable and would be considered a staple in most portfolios. These growth funds tend to follow the market due to size; however, measuring growth funds against the S&P 500 may lead to inaccurate conclusions. We all want to benchmark to understand if our investment is doing well. To do so, a more accurate representation of a benchmark trend is a measurement against the Russell 1000. The Russell 1000 is a subset of the Russell 3000; however, the Russell 1000 measures compose the largest 1000 growth stocks. Thus, it is a more representative measurement.

 

Even though they’re ‘fruit,’ you can’t measure/eat them the same way!

 


Growth and Income

Growth and Income funds are large market capitalization value (‘large-cap value’) stocks/funds that provide a dividend payout that can be realized out or reinvested. If you reinvest those dividends, they can grow along with the portfolio and improve the fund's overall return. Dividend payouts are based on the company's net profit and number of shares in the portfolio. Remember, this is a payout to all shareholders and can come monthly, quarterly, or yearly. Thus, tracking the dividend payout ratio is important. We at Whitaker-Myers Wealth Managers track this metric, which shows us the sustainability of a company’s dividend program. The inherent risk with dividend investing is that if a company does not show a profit, there isn’t a dividend to pay out! Tickers in this category include Coke, Pepsi, Citigroup, and many others.

 

Similar to large-cap funds, benchmarking performance against a market index is most accurately done when comparing the fund to the Russell 1000. However, we must look at the Russell 1000 value index in this case. This index measures the large-cap value funds against each other. As our fearless leader, John-Mark Young, shares in his weekly market update, we can appropriately combine both value and growth funds and use the S&P500 as an appropriate benchmark since the S&P500 includes both categories of funds. Remember, the S&P500 can only be used as a benchmark when both fund types are combined!



Tax implications must be considered when a dividend reinvestment or payout strategy is in play. Make sure to talk to your CPA or Financial advisor to understand which is the most appropriate for your situation.


Aggressive Growth

This category includes both small-market capitalization (small-cap) and mid-market capitalization (mid-cap) funds. Small-cap funds are companies that have a market capitalization of <$2 billion, while mid-cap funds range between $2-10 Billion. The categorization of these funds under ‘aggressive growth’ directly aligns with their volatility. When comparing volatility, small-cap funds tend to be the most volatile, followed by mid-cap and lastly, large-cap. Though these may have higher risks, the upside and earnings potential are also great. When considering this category, consider Amazon starting out early in the 90s or Google in its early stages. Only a few companies make it as large as they did; however, those that do can greatly drive growth in your portfolio.

 

We won’t discuss it this week, but value and growth funds can also be selected within each small-cap and mid-cap asset class. A good market benchmark for Aggressive growth funds is the Russell 2000.


International

International stock/fund investing has been traditionally used as a hedge against the U.S. economy and a diversification strategy. Though they haven’t performed as well as the other three buckets, we are seeing an emergence of specific international markets driving growth and returns. For example, considering the sociopolitical and economic impact of the local environments of China and India, the OECD (Organization for Economic and Cooperation Development) is projecting India’s 2024 growth of 6.3% compared to China’s 5.2% (Economictimes.com). This would suggest a possible rebalance of the international portfolio or at least tracking the growth of India’s economy to see if this is a good fit for your strategy.

 

We track our international portfolios against the MSCI EAFE at Whitaker-Myers Wealth Managers. This ETF fund (Exchange-Traded Fund) provides an aggregate of small, mid, and large-cap funds, including stocks from Europe, Australasia, and the Far East. 

 

Some may debate the need for the international fund in a diversified portfolio since the exposure of many large-cap funds includes their international markets. Discuss with your financial advisor what is best for your portfolio and ask the difficult questions. Ultimately, your investment needs to work how you want it to!


Other

The elusive ‘other’ category. If you spent some time looking at the periodic table of Scrabble points, you probably noticed we didn’t include many asset classes in this discussion. Don’t worry; we’ll dive deep into those in an upcoming post! These include EM, Fixed Income, Balanced, Commodities and REITS.


Summary

To SUM(m)-IT all up, yes, a horrible play on words; I hope you walk away with this: Market capitalization plays a significant role and influences your investment risk and returns. Measuring risk small-cap>mid-cap>large-cap also directly correlates to reward/return. Volatility aligns in the same order. While small-cap funds are more volatile, large-cap funds are much more stable. You can find growth or growth and income divisions in each category, which may add another component to your portfolio (with dividend returns). Whatever direction you go, remember to keep diversified, invest intelligently, and talk to your financial advisor about aligning your strategy and long-term financial goals.

 

Investing is never one-size-fits-all. Though I would really like to fit into the jeans I wore 20 years ago, the amount of cake and cookies I’ve eaten over the years doesn’t make that reasonable right now. Investing is similar (minus the cake); your strategies and goals will change as you get older. Remember that our financial coach and advisors are here to walk with you every step of the way, even after 30-40 years when the cake catches up! We’re here to help. Schedule time with our advisors here or submit a question for me to answer here.

Whitaker-Myers Wealth Managers is an SEC-registered investment adviser firm. The information presented is for educational purposes only and intended for a broad audience. The information does not intend to make an offer or solicitation to sell or purchase any specific securities, investments, or investment strategies. Investments involve risk and are not guaranteed. Whitaker-Myers Wealth Managers reasonably believes that this marketing does not include any false or misleading statements or omissions of facts regarding services, investment, or client experience. Whitaker-Myers Wealth Managers has a reasonable belief that the content will not cause an untrue or misleading implication regarding the adviser’s services, investments, or client experiences. Please refer to the firm’s ADV Part 2A for material risks disclosures.

Past performance of specific investment advice should not be relied upon without knowledge of certain circumstances of market events, the nature and timing of the investments, and relevant constraints of the investment. Whitaker-Myers Wealth Managers has presented information in a fair and balanced manner.

Copyright (c) 2023 Clearnomics, Inc. and Whitaker-Myers Wealth Managers, LTD. All rights reserved. The information contained herein has been obtained from sources believed to be reliable, but is not necessarily complete and its accuracy cannot be guaranteed. No representation or warranty, express or implied, is made as to the fairness, accuracy, completeness, or correctness of the information and opinions contained herein. The views and the other information provided are subject to change without notice. All reports posted on or via www.clearnomics.com or any affiliated websites, applications, or services are issued without regard to the specific investment objectives, financial situation, or particular needs of any specific recipient and are not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. Past performance is not necessarily a guide to future results. Company fundamentals and earnings may be mentioned occasionally, but should not be construed as a recommendation to buy, sell, or hold the company's stock. Predictions, forecasts, and estimates for any and all markets should not be construed as recommendations to buy, sell, or hold any security--including mutual funds, futures contracts, and exchange traded funds, or any similar instruments. The text, images, and other materials contained or displayed in this report are proprietary to Clearnomics, Inc. and constitute valuable intellectual property. All unauthorized reproduction or other use of material from Clearnomics, Inc. shall be deemed willful infringement(s) of this copyright and other proprietary and intellectual property rights, including but not limited to, rights of privacy. Clearnomics, Inc. expressly reserves all rights in connection with its intellectual property, including without limitation the right to block the transfer of its products and services and/or to track usage thereof, through electronic tracking technology, and all other lawful means, now known or hereafter devised. Clearnomics, Inc. reserves the right, without further notice, to pursue to the fullest extent allowed by the law any and all criminal and civil remedies for the violation of its rights.

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