Fundamentals of Capital Allocation – Major Asset Classes
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1. Public Equities (Stocks)
Definition:
Ownership shares of publicly traded companies listed on stock exchanges (e.g., S&P 500 companies). Shareholders benefit from price appreciation and dividends.
Pros
• High long-term return potential
• Highly liquid — can buy/sell quickly
• Easy to diversify across industries and countries
• Transparent pricing and regulation
Cons
• Volatile in the short term
• Market crashes can wipe out large portions temporarily
• Emotional investing can lead to bad timing (buy high/sell low)
• Exposed to economic cycles
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2. Private Equity / Equity Stakes in Private Companies
Definition:
Ownership in companies not traded on public markets — includes small business ownership, startups, private partnerships.
Pros
• Potential for very high returns
• Influence or control over operations
• Lower price volatility than public markets (because pricing isn’t daily)
Cons
• Illiquid — hard to exit or sell quickly
• High failure risk, especially in startups
• Requires expertise, management, or due diligence
• Valuation uncertainty
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3. Fixed Income (Bonds)
Definition:
Loans made to governments or corporations in exchange for fixed interest payments, with principal returned at maturity.
Pros
• Predictable, steady income
• Lower volatility than stocks
• Used for capital preservation and income generation
• Often move differently than equities (good diversifier)
Cons
• Lower long-term returns than stocks
• Vulnerable to inflation (fixed payments lose purchasing power)
• Interest rate movements can reduce market value
• Corporate bonds carry credit/default risk
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4. Real Estate / Land
Definition:
Ownership of physical property or land, used for rental income, appreciation, or development.

Pros
• Generates cash flow (rent)
• Tangible asset with intrinsic utility
• Historically strong inflation hedge
• Can use leverage (mortgages) to increase returns
Cons
• Illiquid — selling takes time
• Property management problems (tenants, repairs, vacancies)
• Upfront capital required
• Market downturns can trap equity for years
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5. Commodities (Gold, Oil, Metals, Agriculture)
Definition:
Raw physical resources used in production or held as stores of value.
Pros
• Hedge against inflation and currency depreciation
• Useful during geopolitical or market uncertainty
• Low correlation to stocks/bonds
Cons
• No cash flow — only price speculation
• Can be highly volatile
• Requires storage or futures contracts
• Influenced by global supply/demand shocks
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6. Crypto-assets (Bitcoin, Ethereum, etc.)
Definition:
Digital assets secured by blockchain technology. Some are “store-of-value” assets (BTC), others enable smart contracts and applications (ETH).
Pros
• High upside potential in emerging tech
• Borderless, 24/7 markets
• Decentralized and independent of governments
• Can provide diversification from traditional finance
Cons
• Extremely volatile
• Regulatory uncertainty
• Security risks (exchanges, custody)
• Many crypto projects fail, fraud risk
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7. Cash & Cash Equivalents (Savings, Money Markets, T-Bills)
Definition:
Highly liquid, low-risk assets immediately convertible to cash.
Pros
• Safe and stable
• Useful for emergency reserves and short-term spending
• No volatility
• T-bills and money markets earn modest interest
Cons
• Very low returns
• Inflation erodes value over time
• Not a growth vehicle
• Poor long-term wealth builder