How To Invest $1 Million In Today’s Market: Expert Advice For Different Risk Profiles
As the market navigates a period of volatility and the Federal Reserve makes its first interest rate cut in four years, many investors are wondering what to do with their money. If you had $1 million to invest right now, how would you allocate it? CNBC Pro sought the guidance of experienced investors to provide insights for portfolio strategies across various risk profiles.
Key Takeaways:
- Interest rates are falling, creating an opportunity for investors to move out of cash.
- Experienced investors suggest different portfolio allocations depending on your risk tolerance.
- Cautious investors may favor gold miners and short-maturity bonds, while more aggressive investors might consider increasing exposure to emerging markets and digital assets.
- Individual stocks offer diversification and potential for higher returns compared to funds, especially with a larger investment capital.
Cautious to Balanced Risk Profile
Paul Gambles, managing partner of MBMG Family Office Group, recommends a cautious to balanced portfolio allocation for investors who prefer a conservative approach. Here’s a breakdown of his suggested investment strategy:
- Global Equities: 30% allocation, including exposure to developed markets.
- U.S. Treasuries: 20% allocation, capitalizing on falling interest rates.
- Global Equity Hedge Funds: 20% allocation, providing diversification and hedging against market volatility.
- Asian Equity Hedge Funds: 15% allocation, focusing on growth opportunities in Asia.
- Japanese Government Bonds: 10% allocation, a safe haven asset.
- China Treasuries: 5% allocation, offering exposure to the growing Chinese economy.
Gambles emphasizes the importance of duration, suggesting that investors should hold long-term bonds, which are more sensitive to interest rate changes and offer larger potential gains. He has recently reduced his exposure to gold miners due to their recent strong performance but still considers them a valuable asset. He also highlights the potential benefits of Japanese Government Bonds (JGBs) for USD-denominated investors, as they often prove cheaper and easier to access compared to investing directly in yen.
Balanced to Medium Risk Profile
David Dietze, managing principal and senior portfolio strategist at Peapack Private Wealth Management, believes that $1 million allows investors to build a diversified portfolio through individual securities, potentially minimizing the impact of fund fees. His recommended allocation for investors with a balanced risk profile is:
- Stocks: 65% allocation, with a focus on large cap domestic stocks and some exposure to small cap and overseas stocks.
- Fixed Income: 30% allocation, focusing on high quality bonds with short maturities.
- Cash: 5% allocation, providing liquidity and a buffer against short-term market fluctuations.
Dietze recommends a long-term perspective, encouraging investors to avoid “gaming the near-term outlook” and focus on building a solid portfolio for sustainable growth. Some specific stocks that Dietze currently favors include:
- Bristol Myers: A pharmaceutical company with high dividend yield and potential for growth.
- BHP Group: A global mining company with low debt and high profitability, offering a hedge against inflation.
- Hershey: A long-term outperformer with consistent growth and attractive total returns.
More Aggressive Risk Profile
For investors with a more aggressive risk appetite, Gambles suggests an “all-in commitment” to the themes he expects to deliver high returns, while minimizing hedging strategies. His recommended allocation for this profile is:
- Global Equities: 35% allocation, with a focus on emerging markets.
- U.S. Equities: 5% allocation, reduced exposure to the U.S. market.
- U.S. Treasuries: 20% allocation, maintaining exposure to government bonds.
- Asian Equity Hedge Funds: 20% allocation, further increasing exposure to Asia.
- Japanese Government Bonds: 20% allocation, doubling the allocation to JGBs.
- Bitcoin: 5% allocation, hedging against potential overexposure to Treasuries.
- Tactical Trades: 10% allocation, reserved for short-term opportunities and high conviction trades.
Gambles acknowledges the unusual approach of holding a significant portion of government bonds in an aggressive portfolio but emphasizes that it reflects a defensive strategy to manage risk when a more conservative approach is needed. He believes this approach would be most beneficial during periods of economic uncertainty and market volatility.
Important Considerations for Investors
- Individual investor circumstances and goals should always be considered when allocating funds.
- Diversification is crucial, and no single investment strategy is universally perfect.
- Long-term thinking is essential, as markets fluctuate significantly in the short term.
- Investing involves risk, and past performance is not indicative of future returns.
- Seek advice from qualified financial advisors to determine the best investment strategy for your specific needs and risk tolerance.
By understanding the strategies employed by experienced investors and tailoring their advice to your individual risk profile, you can make informed decisions to achieve your financial goals in today’s dynamic market.
