Fundamentals of Investing

The investment universe is bigger than you might expect, and you have quite a few choices when it comes to putting a financial and investment plan into action. In the end, saving and investing are the fundamental means towards achieving your financial goals—and freeing up your time to focus on the areas of life you value most.

The good thing? Your advisor is here to help. They are committed to helping you with the planning and education you need to get focused on what matters most in enacting your plan.

The Foundation of Every Portfolio

Before building a portfolio to help you achieve your plan, you’ll want to understand the choices you have. The basic levers in portfolio design are stocks and bonds. They are the two main investment options available to investors, as well as the primary methods through which public companies raise money to invest in their operations.

When buying shares of a company, you hope to capture a share of their future profits, but when buying bonds you’re counting on being repaid the money loaned, with interest.


Also referred to as equities, stocks are considered a purchase of ownership in, and in turn, a share of a company. Since future cash flows and profits are highly uncertain, stocks tend to be a riskier and potentially more lucrative investment option.


Also called fixed income, bonds can be considered loans to governments or a company in exchange for interest payments or additional income. Since most bonds have defined cash flows, they tend to be less risky than many other investments.

Time Has Proven the Value of Investing

When investing, your primary goal is to grow your accounts to fund your financial goals. Historically, while both bond and stock investments have outpaced inflation, and given the higher level of risk, stocks have delivered significantly more growth over the long term.

The Ebb and Flow of Stock Market Investing

Stock returns have been impressive, but they’re not consistent.

Despite the growth, investing is filled with ups and downs, and even the best years go through bad periods. In fact, stocks decline one month out of every three, and you can expect a pullback of 20% or more once every 4 years. This is known as volatility, and it’s why you should expect a bumpy road towards portfolio growth.

Discover why we believe it’s time in the markets, not timing the markets, that matters.

Seeing the Whole Investment World

When you see the financial news, they are typically reporting on the Dow Jones Industrial Average (DJIA), the S&P 500 or the NASDAQ—what does that really mean? These are key indexes, or proxies for the overall “market”. The DJIA comprises only 30 stocks that are considered core to the U.S. market activity while the S&P 500 consists of the largest 500 companies in the United States. The NASDAQ tends to focus on more technology-focused companies.

While the U.S. boasts the largest stock market, overlooking other global markets may present missed opportunity. There is so much more to investing than the S&P 500—and lately a few large companies have come to dominate the index. The top 5 names in the S&P 500 account for nearly 25% of the overall index (as of December 31, 2023).

16,500 companies (outside the US) comprise 41% of $69 Trillion of the Global Stock Market

Breaking Down the Indexes

These well-known indexes generally only track larger companies. For example, the S&P 500 tracks the largest companies in the U.S., and most of those have done relatively well over recent periods, meaning they’re more expensive than other companies that you can buy.

This is the concept of investment style and is a key component in your overall strategy.

However, did you know that in addition to the roughly 500 largest stocks, there are over 3,000 other companies you can invest in in the U.S.?

Although the S&P 500 is a good proxy for how stocks have performed in the U.S., there’s a world of opportunity beyond those large companies. And it’s hard to predict which types of stocks will have the best returns, especially over the next year.

S&P 500 The Rest of the U.S. Over 3,000 more companies Other Developed Countries Over 6,400 more companies Emerging Markets Over 8,600 more companies

Chasing Missed Opportunity

Many investors suffer from recency bias and overemphasize companies or regions that have done well recently. However, historically we see no discernible pattern that suggests we can predict which countries will do the best.

In some years, U.S. companies do well. In other years, companies in Europe do well. In other years, we see companies in emerging markets do well. And we have seen plenty of times where U.S. companies lagged their international counterparts, even over five-year periods.

Regional Returns (%) 1994-2023

Returns Aren’t Predictable

Evidence-driven investing looks at diversification from other angles as well. We can sort companies based on their size and value (how the public pricing of the company compares to its book value). These are called asset classes.

Asset classes are categories of investments that tend to share characteristics and respond similarly to market and economic events. Asset classes extend beyond stocks to bonds and other investments, and they form an extremely important building block in investing.

The challenge here is: can you find a pattern in the colors?

No? That’s why we invest in a broad range of asset classes—to diversify and balance out returns. While no one knows who might outperform in the future—we know that investing in companies all around the world, both big and small, is the starting point for any good portfolio.

Asset Class Returns (%) 1994-2023

Want to learn more about how these investment building blocks are used to create your portfolio?

Contact your advisor to take your investment knowledge to the next level and find out how they can support you on your journey.

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