A common question especially in Asset Management circles?
Where to invest $1 Million
The challenge to this question is that ‘nothing looks cheap’. Many equity markets including the US and most of Europe are trading at all-time highs despite a fragile post pandemic global economic recovery. One stock market that is an exception is the UK where the ‘FTSE’ (Footsie) 100 index is well below record highs as the UK still comes to terms with both Covid and Brexit. Note: the FTSE 100 index is also not a good representation of the UK economy as many of the constituents are global companies e.g., Glencore (commodities), BP (oil) and such companies earn the majority of their revenue from outside the UK. The FTSE All-Share index is a much better representation of the UK economy – this index is only modestly below its record of 3 years ago.
Bonds also offer little value with the yield on the US 10-year government bond at 1.6% Yield-to-Maturity (annual rate of return) and the 40-year yield range being 14% to 0.5%. Although yields have risen over the last 12 months – they have not risen by much. Corporate bonds also only yield 0.50 to 1% above governments for investment grade debt. Furthermore, with inflation running at a 4-6% annual rate in the Western World – even if this is a temporary phenomenon – bonds yielding 2 or so % offer a negative real return.
Commodities too – as the global economy recovers – from zinc to copper to timber are trading at multi-year highs.
So, nothing looks cheap!! How do I invest my $1 million?
If I am constrained to buy traditional asset classes (share, bonds, commodities), despite equities being perhaps fully valued, I would put 80% of my money into stocks. We do have something of a ‘goldilocks’ scenario for stocks with the global economy not running too fast or too slow and inflation (according to Central Banks) a temporary phenomenon so interest rate rises (bad for stocks) should be modest. I would allocate most of my equity allocation to USD stocks as
-they keep trending higher on a quarter-by-quarter basis
-the US indices e.g., S&P 500 contain the fast-growing tech giants of Apple, Google, Netflix, Tesla so I would buy an instrument that had broad exposure to the market, perhaps an ETF
– The European economic recovery does not look as convincing as the US.
-And therefore, the US Dollar should continue to be well supported if US interest rates go up faster than Europe
I would put 10% into Gold (trading at $1800 dollars per ounce) because
-Gold does not look so expensive given its high was $2,050 an ounce reached summer of 2020 and gold is a hedge against inflation should inflation become more on a medium-term problem.
The remaining 10% I might split between China and Japan. China because it is the second biggest economy in the world and China seems to be able to achieve consistent 6-7% annual growth.
Japan – because the Nikkei index is trading at 30,000 which is still nearly 25% below the peak (38,500) reached 30 years ago and there are very few markets in this position.
If I am NOT constrained to buy traditional asset classes I would allocate 50% of my money according to the splits above. With the remaining 50% I would seek out Private Equity providers with a proven track record and invest my money accordingly due to the limited ‘value’ available in bonds and stocks.