As the second half of the year began, stocks have fluctuated wildly since July, and volatility has dominated the market. The U.S. Federal Reserve cut interest rates for the first time in four years, and is expected to continue to do so. With interest rates expected to fall, some are calling for investors to pull out their cash. If you had $1 million to spare to invest right now, what should you buy? CNBC Pro asked veteran investors how they would allocate their portfolios with that money. They shared tips for investors with three levels of risk tolerance. Cautious to Balanced Risk Profile Paul Gambles, managing partner at MBMG Family Office Group, said he recently adjusted his allocation for investors with a cautious to balanced risk profile as follows: Gold mining companies once had a fairly high allocation of over 10%, he said, but have recently been selling “aggressively” because “the rally has been too strong to ignore.” Other changes the firm has made include reducing its allocation to Japanese government bonds and increasing its position in Chinese government bonds. “Governments are definitely a buy for duration,” he told CNBC Pro in an email. “It seems like it's a lot easier and cheaper to buy unhedged USD-denominated ETFs of Japanese government bonds than it is to buy yen. When you buy yen, the FX spreads always seem to be higher than they should be,” Gamble said. The portfolio has returned about 10% so far this year. Balanced, moderate risk profile David Dietze, managing principal and senior portfolio strategist at Peapack Private Wealth Management, said that with up to $1 million to invest, investors can buy individual securities without being limited to a fund. The firm has $11.5 billion in assets under management. “With a much smaller amount of money, investors are forced to put money into funds to be adequately diversified. With $1 million, you can put $20,000 into 50 different stocks and say you're adequately diversified,” Dietze said. Fund fees are one reason to choose individual stocks over funds, and “a lot of people say it's the biggest factor in determining the long-term success of a portfolio,” Dietze said. Dietz said that for $1 million in assets, he prefers a traditional allocation of 65% stocks, 30% bonds, and 5% cash, balancing stocks, bonds, and cash. “I will continue to lean toward large domestic stocks, but an allocation to small and mid-caps and international stocks makes sense given the good valuations in those two categories,” he said. In terms of bonds, he said investors should pick high-quality, short-maturity bonds. The portfolio is a multiyear allocation, and he advises investors not to “play with the short-term outlook” of the market. Some of Dietz's current favorite stocks include pharmaceutical company Bristol-Myers, Australian mining company BHP Group, and Hershey. For each stock, he said: Bristol-Myers is “inherently undervalued,” and would benefit from the market's shift from its “obsession with AI” to the high-dividend sector. The stock currently has a dividend yield of about 4.8%. BHP, the world's largest mining company, has low debt and high profitability, making it a good hedge against inflation. Hershey's is a “long-term outperformer,” with a total return of 14% annualized over the past decade. A more aggressive risk profile Gambles said taking a more aggressive stance means “going all in” on themes he expects to perform and removing hedges on those trades. As his clients move into more aggressive portfolios, he allocates as follows: In contrast to the portfolio for cautious to balanced investors, Gambles reduced allocations to global equity hedge funds and increased allocations to Asian hedge funds. He maintained his allocation to U.S. Treasuries and doubled down on Japanese government bonds. “I think the most interesting thing for a lot of readers is that an aggressive portfolio has a 60% allocation to various government bonds. But aggressive means being aggressively defensive if things go south,” he said in an email. From a theoretical standpoint, he said he hedges excess exposure to government bonds by allocating 5% to Bitcoin. Additionally, they'll allocate 10% to trades they feel are bullish at the moment, including short-term tactical allocations. “There's nothing all that attractive right now. We're leaving most of that capital dry and waiting for something to happen that creates mispricing,” he said.
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