When you are working to establish your investment strategy, one of the things you need to do is invest for growth of your portfolio. In order to do this, you need to make some decisions on where you are going to put your investment funds. You need to take a look down the road, and decide where the best growth potential exists.

Gordy Crawford is a Senior vice president of The Capital Group Companies. In an interview, he said some very interesting things about your investing strategy. He was asked what criteria he uses to choose companies for his portfolio. He indicated that he looks for those industries and countries that have tailwinds behind them. He will first look for the forest, as he puts it. Once he gets “the forest right”, then he is able to worry about the trees. He tries to visualize what the world will look like in two or three years, and then does his stock picking to fit that world. He chooses his stock from the bottom up, one stock at a time.

He sees the major investment markets in a state of decline while the emerging markets, such as Brazil, India, China and Russia are all gaining market share. He feels that over the next 20 years, over 70% of the incremental growth will be in these emerging markets. He acknowledges that there are risks associated in placing your investments in these markets, but he feels that is where the “unmet needs” are going to be.

Energy is going to be one of the most important economic themes of our lifetime, according to Mr. Crawford. The impact of the internet on the media and the digitization of the world are other major considerations for your portfolio. He advocates once again of looking ahead and finding those companies positioned to take advantage of the changing world. Imagine where you would be if you had had the foresight to see the rise of Google or Microsoft when they went public.

Lastly, he feels that equities are still positioned to outperform the other asset classes. He states that depending on an investor’s age and risk tolerance, they should definitely have a diversified portfolio that includes a good mix of equity investments. He also feels that investors should have a substantial investment outside of the United States.

When determining your investment portfolio strategy and long term goals, it is important to know a little bit about the different asset classes you can choose to invest in. Establishing a portfolio which invests in several different asset classes will make your portfolio more diversified. This means that your risk is spread over several different options. If one asset class goes down, another asset class may be going up.

An asset class is a grouping of similar investments or securities that tend to move together. In a broad sense there are only a few asset classes while there are different investment categories within the broad investment classes. The three main investment classes are Cash, Fixed Income and Equities. A fourth special asset class can also be considered. This class includes commodities and private equity which can include hedge funds, venture capital funds and leveraged buyouts. Real estate is also considered an asset class which is not a part of the stock market investment pool.

Within the cash asset class, you can include money market, certificates of deposits, institutional savings plans, The Fixed Income class can include U.S. Treasuries, Foreign Bonds, municipal bonds, corporate bonds and asset-backed securities. The Equity asset class can include domestic equities including stocks, developed market equities which are stock investments in Europe and the Pacific Rim, Emerging Market equities which are stock investments in developing countries such as Brazil, China and India. Another category in the Equity class would be real estate investment trusts or REIT’s.

There are different thought process from investment advisors as to how many of the asset class categories an investor should be invested in to properly diversify their portfolio. John Bogle, the founder of Vanguard, feels that two classes are sufficient. These classes would be the U.S. Bond market index and the total U.S. equity market index.

David Swenson who runs the Yale endowment feels that 6 major asset classes (domestic equity, foreign developed securities, emerging markets, REIT’s, U.S. Treasury Bonds, Treasury inflation protected bonds) would be all you would need.

William Bernstein, an asset allocation author, feels you should have over 20 different asset classes.

It is hard to know exactly but it is a given that to be properly diversified, you should have around 4 – 8 different categories across the three major asset classes. Investing in the special asset class is speculation. A review of the historical risks and returns along with some advice from an investment advisor would help to determine the type of portfolio you should develop.

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