The Stewardship of Wealth: Successful Private Wealth Management for Investors and Their Advisors, + Website

Chapter 11

Investing in U.S. and Non-U.S. Equities

In investing money, the amount of interest you want should depend on whether you want to eat well or sleep well.

—J. Kenfield Morley

Once their portfolios have been properly designed, many investors (and, alas, many advisors) immediately move on to the selection of money managers. This is almost always a mistake, because it confounds two allied but distinct issues. Evaluating and selecting managers is one of these issues, of course (see Chapter 17). But a preliminary issue exists; namely, what are the optimal strategies that should be pursued in the asset classes that are to be included in the portfolio? Once asset class strategies have been identified, the manager selection process will be much simplified.

In this and the next few chapters I will discuss best practices for investing in the main asset classes wealthy families employ in their portfolios: domestic equities, non-U.S. equities, fixed income, hedge funds, private equity, and real assets.

Every type of investment asset comes fully accessorized with its own investment challenges, as well as different tax, risk, return, correlation, and other characteristics. And every investor comes fully accessorized with his or her own individual objectives, time horizons, tax issues, and judgments about alpha versus risk premium.

Before families turn their attention to the hiring of money managers, they need to give careful consideration to the characteristics of the asset classes ...