The growth asset class is normally called the equity asset class, and for very good reason. This asset class is normally synonymous with capital appreciation, something that is most commonly achieved through equity investments.

More Than Equities

However there is a lot more to the growth class than just equities. Derivatives, commodities and precious metals offer great opportunities for growth as well, yet none of these assets are considered equities.

Since a lot of the non-equity investments that offer growth can be purchased by your average investor, it is therefore simpler to refer to the growth class simply as the equity class.

Purpose of Equities

Probably the biggest reason why the growth class is often referred to as the equity class has a lot to do with the limitation of risk. Unlike precious metals, commodities and derivatives, an investor can take a tangible ownership (equity) position in a security, company or other asset (like real estate). This limits the risk — precious metals for example can be lost or stolen and can be rendered untracable, just as commodities and derivatives can expire worthless; equities on the other hand can be held indefinitely.

In that regard, the growth class is arguably the most volatile and risky. Even equities themselves will fluctuate more than will assets in other asset classes. But since there is more risk, there is also a lot more opportunity (the class itself is littered with sub-categories and alternate classes). This not only allows for diversification within the class itself, but enhancements through other similar assets within the class (e.g. a core stock portfolio with smaller portions of specialized equity assets).

Objective of Holding Equities

Investors will hold equities for one simple reason: they want to experience financial growth through capital appreciation. This is the primary goal with these investments and over time they have provided the quickest and steadiest growth rates than any other asset class.

The problem, however, is volatility. Investors who are unable to stomach the risk of loss associated with volatility will have a tough time investing in the growth class as a consequence of their inability to tolerate risk.

Who Should Hold Equities

Unfortunately, anyone who intends on growing their portfolio, such as planning for retirement, will need to resort to growth assets. As well, people who want to replace burnt capital, such as people who are spending during retirement, will also need to hold equities.

The difference is how much, as a percentage of their total portfolio, each type of investor will hold in their portfolios. The only type of investor who will not need to hold equities in their investment portfolio is one whose goal is to either keep their portfolio safe at the cost of capital depreciation (including purchasing power loss) or the goal is to spend the value of the portfolio over a given period.

Summary

As part of the growth asset class, equities offer opportunities for growth. The equity asset class itself is a large class and can be further broken down into specialized classes and sub classes and categories. The objective with equities is to achieve growth through capital appreciation and investors who do not want to burn through their capital base will need to hold equities in their portfolios.

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