Building a Smart Investment Portfolio: Six Key Factors for Choosing Asset Classes

Elm Wealth recently shared a thought-provoking piece on how to evaluate asset classes when building a portfolio. The article highlights six essential factors investors should consider before including any asset in their investment mix. This clear framework offers a practical approach to diversification, helping investors understand what truly deserves a place in their portfolio and why each choice matters for long-term performance.

• Low cost
• Expectation of risk premium
• Ability to systematically estimate expected return
• Non-zero-sum
• Liquid
• Tax-efficient

Here is a partial excerpt of selected asset classes, outlining how each one performed under each individual criteria. Find the full chart with all of the asset classes in their article.

Here are the asset classes that passed all six criteria.

Risk Assets

• Broad US Public Market Equities
• Broad Non-US Public Market Equities
• Public Market REITS

Safe Assets

• US Treasury Bills
• Treasury Inflation-Protected Securities (TIPS)
• US Treasury and investment grade nominal bonds (small allocation)
• High grade municipal bonds (small allocation in taxable)

This pretty much matches my portfolio. I know this list is incredible “boring”, and they don’t include any of the trendy ones right now – private equity, aggressive covered call options, crypto, etc. Sometimes, I am also pulled by the desire to seem skilled and sophisticated. But I think it’s an important message that these readily-available asset classes are all you need to achieve financial independence.