Major changes have taken place in the economy over the past five years. A long-standing zero-interest rate regime has given way to rising rates, leading to higher borrowing costs— a situation usually bad for stocks. But tech companies have done well this year despite that. And the red-hot inflation that characterized the past couple of years is now cooling, raising several questions for investors: How will this affect stocks and interest rates, and depending on how it turns out — the dominance of tech stocks? CNBC Pro spoke to financial advisors and investment experts to find out how they would allocate $250,000 over the next five years. Here are three types of portfolios that cater to investors with different risk appetites. 60/40 portfolio If you’re a conservative investor, putting 60% in stocks and 40% to bonds is the way to go for the next five years, according to Jay Hatfield, CEO of Infrastructure Capital Advisors. He would allocate $100,000 to fixed income in this way: $35,000 to U.S. Preferred Stocks: Preferred stocks have attractive yields and are depressed after two years of weak stock and bond markets — and so are set to gain if the stock market recovers, Hatfield said. Preferred stocks have characteristics of both stocks and bonds — they trade on exchanges like stocks but they have a face value and pay dividends like bonds. They are also like bonds in that when the value of the preferred stock goes down, yields rise. They typically offer a higher yield than other fixed income products and can be riskier. $35,000 to U.S. high-yield bonds: Such bonds will benefit from stock and fixed income markets — which is Hatfield’s forecast for 2024. $30,000 to investment grade bonds: This is a conservative investment that will benefit if long-term rates rally, he said. Hatfield would allocate $150,000 to stocks: $30,000 to U.S. large-cap dividend stocks: He finds it a “very undervalued” asset class trading at less than 11 times earnings. $30,000 to U.S. pipeline companies: This corner of the oil and gas sector offers good long-term tax deferred income and strong dividend growth, he said. $30,000 to the Nasdaq 100 Fund: It’s a way to play the artificial intelligence boom, according to Hatfield. $15,000 to Nvidia and $15,000 to Microsoft — also as a play on AI. $30,000 to a U.S. small-cap income fund: Small-cap value/income stocks are “very cheap,” trading at around 10 times earnings after declines since the U.S. Federal Reserve started tightening rates, he said. From U.S. Treasurys to gold miners For medium-risk investors who are targeting real returns of 3%, Paul Gambles, managing partner of MBMG Family Office Group, recommends this asset allocation. Overweight on stocks, neutral on bonds James McManus, chief investment officer at JPMorgan-owned investment platform Nutmeg, has a slightly overweight position on stocks, and is neutral on fixed income. “There are signs economic conditions are improving, driven by the robustness of the US economy and a bottoming out in global trade,” he wrote. American consumers are resilient, thanks to “ample” liquidity remaining on household balance sheets, he added. “The widely expected earnings recession is in the rear-view mirror and investment activity appears to be improving, corporate balance sheets remain strong and bullish for earnings over the next year,” said McManus. The picture looks less rosy for other regions, according to him. The Asia-Pacific region is still facing headwinds from a sluggish Chinese economy, and in the U.K. and wider Europe, business confidence remains weak, though consumption is improving — only not at the same pace as the U.S. With that outlook in mind, here’s how McManus would allocate the money according to risk level.
