All Things Considered Equal?

Have you ever heard anyone say, “All things considered equal . . .” and then follow it up with a statement? He or she may just be an economist. It’s like saying, “If everything happens the way I expect it to, I’ll be home on time for dinner.” It’s really an out. In economics, enormous models are created with assumptions too numerous to count, and the aforementioned phrase gives the economist an out when circumstances beyond his or her control change. This phrase is especially important in the management of investment portfolios, because the bulk of today’s investment methods are built on this pretext, for better or worse.

All things considered equal, stocks are more risky than bonds. Growth companies, more risky than value companies. Small companies, more risky than large companies. International countries and companies, more risky than the United States and companies domiciled here. In investing circles, each of these categories is called an asset class. If all things were equal, the above presumptions would hold true. But, especially in the world of investments, all things are never equal! They’re in a constant state of flux.