Investments

Is it worth investing in an all-equity portfolio?

Posted by MoneyController on 15.05.2024

Building an investment portfolio often means allocating capital between different asset classes (shares, bonds, cash, etc.). However, it cannot be ruled out that an all-equity investment portfolio may in certain cases prove effective in achieving investment goals.

Emergency fund and debt settlement

Are there cases in which it may make sense to build a portfolio consisting entirely of equities? In Barron's, Mallika Mitra tries to answer this question. Mitra points out that each investor's situation is different and that in each case it is necessary to a) set up a fund that can be drawn on in the event of any eventuality or emergency and b) pay off any debts and interest on loans or credit cards. In addition, it is necessary to clarify to oneself one's investment objective: only then can an effective investment strategy be devised.

A 100% equity portfolio

With this in mind, Mitra writes that an investor with an adequate risk tolerance and a long investment horizon might consider building an all-equity investment portfolio. In this sense, Mitra explains, the most typical investment objective is to build up assets in order to be able to enjoy a supplementary pension. The potential of the stock market, in this sense, could be there: Charles Schwab calculates that the average return on equity portfolios since 1970 has been 10.4 per cent per year, compared to an average return of 9.3 per cent per year for 60/40 (stocks/bonds) portfolios.

Diversification remains central

However, investing in an all-equity portfolio does not mean giving up diversification. On the contrary, as Laura Mattia, CEO of Atlas Fiduciary Financial, explains, if it is true that a 100% equity portfolio can be an effective strategy for a young investor with long-term investment goals, it is also true that diversification remains fundamental. However, as the CEO of Atlas Fiduciary Financial explains, this is not only a way to reduce risk, but also to increase a portfolio's chances of return.

Read also:

Why does it make sense to diversify your investment portfolio?

Investing in shares: what are shares in a company?

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