Where would you invest USD 1 Million today?

September 2017 

With Donald Trump winning the US election the prospects looked bright for US economic growth as he promised a pro-growth strategy of:

  • Lower personal and corporate taxes
  • Significantly increased infrastructure spending (roads, railways, bridges etc…)
  • Less industry regulations (which US banks particularly welcomed)

Three problems 

1) Trump has so far failed to deliver on any of these promises and failed to get his first (healthcare) reforms through Congress

2) The US stock markets (S&P 500, Dow Jones Industrial Average and the NASDAQ technology index) are up broadly 10% since last November’s election day with technology stocks leading the way. US stocks are at record all-time-highs and look fully valued, especially with Trump ‘failing to deliver’.

US stocks have led global equities higher so stock prices across the globe look very fully valued right now.

3) Bonds look expensive too. German 10-year bonds yield just 0.35%, UK 1.10%, US 2.15%. Looking at the last 5, 10, 20 years these are incredibly low yields and with central banks around the world look to raise interest rates to more normal levels (not financial crisis levels) it looks like global interest rates and therefore global bond yields are moving higher. (Yields higher equals bond prices lower).

Emerging Markets bonds and shares have also rallied strongly over the last 12 months and look expensive by historical standards.

So we do we invest our money?

A sensible approach might be to allocate 50% of our money to traditional investments e.g. equities and 50% to more alternative investments.   

Traditional Investments (50%)

Because prices are high right now there is more chance of a significant fall, so rather than invest all in one go, allocate your investments in 3 monthly instalments. This means there is less chance of buying and one week or one month later finding stock prices have fallen 15%  

The US is the largest economy in the world and grew at a healthy 3% in the second quarter of 2017 so allocate half of your equity funds here ( half into technology stocks as the potential for Amazon and Google is truly game changing, half into safer traditional stocks like IBM or Caterpillar Tractor).

The other half of your equity allocation I would buy mainstream European Stocks e.g. Alcatel, Volkswagen as Europe is now finally recovering from the financial crisis and business confidence is currently at a 10-year high.  

Alternative Investments (50%).   

What alternative investments you can invest in will depend on what sort of alternative investments the asset manager offers. It is not unusual for a large asset manager to invest in bespoke projects i.e. student housing or infrastructure loans. If that student housing project offers a 5% annual return that’s going to look pretty attractive versus current bond yields.

Conclusion: Traditional asset classes look expensive right now. Having some exposure to non-traditional asset classes is required.

  

Note: It is more appropriate for a 75-year old investor to buy more ‘safe’ bonds than more risky equities as if equity prices fall he may not have that many years to wait for their recovery. A 40-year old could afford therefore to buy more equities as he can ride out a few down years in price if necessary.

About Paul McCormick

Paul McCormick is the founder of Opening City Doors and is a Financial Market Specialist having worked for several leading Investment Banks and financial technology institutions additionally.He therefore provides a unique insight, and unusually broad perspective, into the opportunities available in London Financial Markets and related sectors and how to launch your career in the ‘City’.