Definition: Domestic Equity includes index funds, mutual funds, or other types of funds which invest only in U.S. domestic stocks (and not bonds).
Investment Case: Stocks (or equities) have historically served as a primary driver of growth and appreciation in investment portfolios. Simply put, they provide the highest potential returns, and over the long term, no other type of investment tends to perform better.
Cost: The cost for the long term performance of investing in stocks is the volatility (up and down movements in price) and draw-down (prolonged down swings). The S&P 500, a domestic equity index has experienced multiple draw downs in excess of 40%.
Applied Academics: Academic research shows that exposure to different areas of the stock market have performed better than others. Namely, exposure to profitable smaller companies and companies priced at lower valuations have performed better historically. We tilt our exposure towards small-cap and value in our domestic equity exposure as well as screen for companies with higher profitability, another academically proven indicator of superior returns.