The last five years have seen major changes in the economy. The long-term zero interest rate regime has given way to rising interest rates leading to higher borrowing costs, a situation that is usually bad for stocks. But even so, tech companies have performed well this year. And the hot inflation that characterized the last few years is now cooling, raising several questions for investors: How will this affect stocks and interest rates, and depending on how it plays out – the dominance of tech stocks? CNBC Pro spoke with 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% in 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 as follows: $35,000 to U.S. Preferred Stock: Preferred stocks have an attractive yield and are depressed after two years of weak stock and bond markets—so they stand to gain if the stock market recovered, Hatfield said. Preferred stock has characteristics of both stocks and bonds—they trade on exchanges like stocks, but have a par value and pay dividends like bonds. They are also like bonds in that when the value of the preferred stock goes down, the yield goes up. They typically offer higher returns than other fixed income products and can be riskier. $35,000 for US high-yield bonds: Such bonds will benefit from the equity and fixed-income markets — which is Hatfield’s forecast for 2024. $30,000 for investment-grade bonds: This is a conservative investment that will benefit if long-term interest rates are going up, he said. Hatfield would allocate $150,000 to stocks: $30,000 to US large-cap dividend stocks: He finds this a “very undervalued” asset class, trading at less than 11 times earnings. $30,000 for 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 for the Nasdaq 100 fund: This is a way to play the artificial intelligence boom, according to Hatfield. $15,000 for Nvidia and $15,000 for Microsoft — also an AI play. $30,000 for a U.S. small-cap income fund: Small-cap value/income stocks are “very cheap,” trading at about 10 times earnings after declines since the U.S. Federal Reserve began tightening rates, he said. From US Treasuries to gold mining companies. For medium-risk investors aiming for a real return of 3%, Paul Gambles, managing partner of MBMG Family Office Group, recommends this asset allocation. Overweight on equities, neutral on bonds James McManus, chief investment officer at JPMorgan-owned investment platform Nutmeg, is slightly overweight on equities and neutral on fixed income. “There are signs that economic conditions are improving, led by the resilience of the US economy and bottoming out in global trade,” he wrote. US consumers are resilient, thanks to “ample” liquidity left on household balance sheets, he added. “The widely expected earnings recession is in the rearview mirror and investment activity appears to be improving, corporate balance sheets remain strong and bullish on earnings next year,” McManus said. The picture looks less rosy for other regions, he said. The Asia-Pacific region still faces headwinds from a sluggish Chinese economy, and in the UK and wider Europe business confidence remains weak, although consumption is improving – just not at the same pace as in the US With this outlook in mind, here’s how McManus will allocate the money according to the level of risk. — CNBC’s Michael Bloom contributed to this report.
