Stay invested regardless of macroeconomic conditions, advises investment expert
As the new year begins, many investors may be wondering how best to invest their money in 2024, given the uncertainty markets face as interest rates remain at multiyear highs. According to Thomas Heller, the chief investment officer of Switzerland-based Belvédère Asset Management, his first piece of advice to clients with a long-term view is to stay invested regardless of the current macroeconomic conditions. Heller believes that not being invested is the biggest investment mistake one can make. He notes that many investors have cash on the sidelines because they simply don’t know what to do or ignore it, and this is not an active position. Heller emphasizes that earning a higher interest rate on cash balance shouldn’t be an excuse to delay investment decisions.
Allocate 90-95% to equities for medium-risk portfolio, suggests expert
For a medium-risk portfolio with a 10-year investment horizon and limited need for the invested money during that time frame, Heller recommends allocating 90-95% to equities. This allocation is based on the assumption that the investor is comfortable with medium risk. For a more cautious investor, Heller suggests a portfolio allocation of 70% to equities and 20% to bonds. He also recommends allocating 10% towards alternative investments such as private equity and private credit over the 10-year period. Heller believes that these allocations can help investors achieve their long-term investment goals.
Diversify globally and tilt U.S. equity exposure, recommends specialist
Heller believes that global investors should not ignore the American market despite the recent run-up in U.S. stock prices. However, he advises investors to diversify globally with a slight home country bias. In addition to having exposure to U.S. equities, Heller suggests explicitly tilting U.S. equity exposure beyond large benchmark indexes to include global small-cap stocks. This approach allows investors to benefit from different market dynamics and potentially higher returns. On the other hand, Hani Redha, the head of multi-asset solutions at PineBridge Investments, sees emerging markets and Indian equities as attractive equity investments for a $1 million portfolio. He expects significantly higher expected annualized returns for those markets than broad U.S. or European stock indexes over the next five years.
Invest in quality corporate bonds for fixed income, experts advise
In a rising yield environment, bonds are attracting interest from investors. When it comes to fixed income allocation, both Heller and Redha recommend investing in corporate bonds over government bonds. Heller suggests allocating at least half of the fixed income allocation to “quality” corporates. Redha echoes this view, noting that bonds and other fixed-income investments are far more attractive now than in the past decade when yields were meager. For instance, the Vanguard Long-Term Corporate Bond ETF pays out nearly 6% annual dividend, which Redha considers a pretty good outcome for corporate bond investors. Redha also highlights that an investment-grade corporate bond can provide an inflation-adjusted “real return” similar to what equities historically delivered.
Selectivity key for investments in the next decade, say investment experts
Both Heller and Redha emphasize that investors should be more selective in their investments over the next decade than in the past, rather than relying on basic market cap-weighted indexes or broad benchmarks. They recommend considering alternative assets, such as private equity and private credit, to diversify the investment portfolio. Additionally, they suggest being selective within markets and sectors, focusing on specific opportunities with attractive valuations and growth prospects. The key message from both experts is that investors should take an active approach and carefully evaluate each investment opportunity based on its potential long-term returns and risk profile.
Analyst comment
Positive news: The investment expert advises staying invested regardless of macroeconomic conditions and recommends allocating a high percentage to equities for medium-risk portfolios. They also suggest diversifying globally and tilting U.S. equity exposure for potential higher returns. Furthermore, they recommend investing in quality corporate bonds for fixed income. They emphasize the importance of selectivity and active approach in investments for the next decade.
Market prediction: Following the advice of the investment expert, the market is likely to see increased investment in equities, both domestically and globally. There may also be a shift towards quality corporate bonds. Investors are expected to be more selective and actively evaluate opportunities for higher returns and lower risks in the next decade. Overall, the market is expected to experience a more diversified and cautious investment approach.
