Here’s where to invest $100,000 right now, according to the pros

Published Tue, Aug 1 20238:04 PM EDTUpdated Thu, Aug 17 20234:28 AM EDT

Despite concerns of an economic slowdown and rising interest rates, the stock market's strong start to 2023 has been dubbed one of the "most hated rallies in recent memory" — with many expecting shares to fall this year. The S & P 500 is up nearly 20% this year, primarily due to the outperformance of stocks such as Apple , Microsoft , Nvidia , Amazon , Meta , Tesla , and Alphabet . Investment bank UBS has estimated that the index's returns would be just 1.6% without the top seven stocks. "Bears in 2023 continue to be proven wrong — this has been one of the most hated rallies in recent memory. I think that will continue," Jeff Henriksen, CEO and founder of Thorpe Abbotts Capital, said via email. Given this uncertain backdrop, investors with a budget of $100,000 might be wondering where and how much to invest in each asset class. CNBC Pro spoke to investment managers and wealth advisors to find out what they think. Cautious on stocks and bonds The run-up in stock prices in the U.S. due to a rise in interest in artificial intelligence has meant a growing disconnect with the broader economy, according to James McManus, chief investment officer at JPMorgan-owned investment platform Nutmeg. For those looking to invest $100,000, the CIO advised caution on allocating too much to stocks and bonds. He highlighted the Federal Reserve's restrictive monetary policy and said the impact of last year's interest rate hikes is "yet to be fully felt in the economy." "We are cautious on the outlook for the next 6-12 months on both global equities and government bonds, and this is reflected in our lower allocation to both assets in medium and high-risk Nutmeg portfolios," McManus told CNBC Pro. The below chart shows Nutmeg's investment allocation guide for "Medium Risk" and "High Risk" portfolios. McManus believes credit is one asset class that investors should consider, however. "We believe that attractive opportunities do exist in the credit space where both [investment grade] and [high yield] balance sheets remain healthy, they also offer an attractive yield pick-up and an alternative sector exposure to the equity indices," he said. McManus said he preferred exposure to this space through ETFs such as the iShares US High Yield ETF , iShares Fallen Angels ETF , and iShares GBP Corporate ETF . Tax advantage trades David Henry, an investment manager at Quilter Cheviot, said that for investors with $100,000 looking to allocate over a 2-to-5-year period, he would suggest "30% to 40% in stocks as a maximum, with the remainder in really high-quality investment grade government debt." Henry favors higher allocation to bonds despite being bullish on the broader economy. He also does not expect the stock market to fall below October 2022 lows without entering a new bear market. "In my view, because we've come a heck of a long way, and when you look back historically, retracements from these sorts of levels are incredibly, incredibly rare," he added. So, why allocate a large percentage of the portfolio today to bonds? "I see very little need in an interest rate world like we are today to reinvent the wheel and try and buy esoteric alternative assets, when the risk-free rate from a sensible government bond is where it is," he said. The two-year U.K. government bond is currently yielding 4.96%. Similarly, two-year U.S. Treasuries are trading at 4.86% yield. He also suggested that investors should consider locking in bigger gains from older bonds with 0.25% to 0.5% coupon payments. How? Due to the rise in interest rates, the prices of older bonds have fallen to make up for an increase in yield. New investors in low-coupon bonds are now compensated through the difference between the bond price and the payment received when bonds mature. "Those bonds are currently trading at a significant discount to their redemption value in 2025-2026," said Henry. The wealth manager explained that for U.K.-based investors, profits on U.K. government bonds are free of capital gains tax. After taxes, the trade would have a higher total return than investment in bonds with larger coupon payments as they are taxed as regular income. Alternative assets A unique feature of ultra-high-net-worth investors is their ability to allocate more to alternative assets, according to Ben Fraser, chief investment officer at private equity investment manager Aspen Funds, which specializes in real estate. He said investors with $100,000 should allocate 25%-40% of their portfolio to stocks, 15% to bonds, hold 10%-15% in cash, and invest the rest in alternatives over a 2-5 year horizon. The CIO is particularly bullish on real estate as he believes it offers a hedge against inflation. "If you look over the past 50 years, the one asset class that's trended and is highly correlated to the rate of inflation has been real estate," Fraser said. Investors that can tolerate a lack of liquidity — the ability to sell quickly — can gain better returns by investing in real estate through private equity instead of buying shares in Real-Estate Investment Trusts or REITs, according to Fraser. Real-estate investment offers several tax benefits in the U.S. he added and typically offers diversification, compared to REITs — which trade in line with stock markets. He said that investors should consider putting between 10% and 50% of their portfolio in alternatives such as real estate, oil and gas, private equity, and hedge funds as he's expecting the stock market to remain flat over the next 12 to 24 months. "I think it's very possible that the [stock] market moves sideways for the next couple of years," said Fraser, whose firm caters to high-net-worth investors.