Where would you invest USD 1 Million today?

19 November 2018  

The US remains by far the fastest growing developed world economy (third quarter annualised GDP growth 3.5%) and the US Dollar has been strong over the last few months after a weak 2017 as US interest rates remain on a firm but gradual upward path – the key ‘Fed Funds’ interest rate (the rate that banks lend to each other on reserves deposited at the Federal Reserve/US Central Bank) has just been raised by a quarter of a point to a range of 2 per cent to 2.25 per cent, the third such increase this year. Three more 0.25% rises are expected in 2019 after a further 0.25 rise in Dec 2018. 

With such an economic and strengthening currency backdrop, I would put 75% in USD Assets. I would favour equities using the broadly 10% fall in equity prices since September’s all-time-highs as a buying opportunity as US fundamentals remain strong.(Equities sold off due to rising interest rates & bond yields and trade tensions particularly with China). Equities will do OK as long as the interest rate increases remain gradual and don’t rise to 4% plus in 18/24 months.

A major driver of US stock market performance has been technology stocks especially the FAANG stocks – Facebook, Apple, Amazon, Netflix, Google. Given such companies are literally ‘game changers’ I would invest half of my 75% in such stocks i.e. 37.5% again using the 10% fall in prices as a ‘buying opportunity’.

To provide some equity diversification, I would invest the remaining 32.5% in stocks/sectors that continue to benefit from Trump’s pro business policies i.e.

  • Banks e.g. Bank of America Merrill Lynch – benefiting from banking de-regulation
  • Construction (or similar) companies e.g. Caterpillar Tractor benefiting from the increase in infrastructure spending.

Of the remaining 25%, I would put into bonds.With 10-year US Government bond yields above 3.10% and therefore Corporate Bonds 0.50 -1.00% higher, bonds for the first time in a number of years are offering yields that justify some asset allocation. The 10-year US Government bond yield was down at 1.5% soon after the 2008 Financial Crisis. With no real sign of inflation bonds offer some value.  

The final 5% I would put into Gold. Gold has performed poorly as equities particularly have performed well over the last several years. Gold is at $1,210 per ounce down from its high of $1,900.Gold will perform well if inflation returns (as it is seen as a store of real value) so this is a hedge (counterweight) to other investment allocations.After several years of global quantitative easing this is quite possible.

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’.