Where To Invest $1 Million (Or Less) Now, According To The Pros

Some say investing is like politics: you’ll never get a consensus. But that’s also the beauty of it (with investments anyway). Bloomberg asked four top-of-their-game money pros where they’d put $1 million now, and their answers couldn’t be more different. Fortunately, you don’t need to be a millionaire to take advantage of their ideas. Let me show you how to customize their strategies for your portfolio:

Idea #1: Unloved sectors.

Marta Norton, the Americas chief investment officer at UK-based Morningstar Wealth, has a bullish take on the economy. Tech has led the US stock market charge this year, but she sees value in other sectors, particularly unloved ones like banking, materials, and master-limited partnerships (MLPs).

Sure, bank shares have their risks, but a lot of worries were already shaken out during this year’s mini banking crisis. Materials stocks, meanwhile, have been stepping up their game in terms of quality, and they're not as overpriced as some other US sectors. And, as for MLPs, they offer a decent yield and have been doing a better job at handling their capital.

She sees potential beyond US borders too, particularly in emerging markets and in certain European pockets, like the energy sector. But remember, these things are still tied to economic ups and downs and come with their own unique risks, especially if the global economy hits a rough patch. To offset those recession risks, she recommends adding a bucket of short-term Treasury bonds, the kind that matures in two years or less. They’ll give you a tidy yield of around 5% and the freedom to adjust your investments if the market gets a bit wild.

Which ETFs offer a good starting point for this idea?

You could consider US sector-specific ETFs like the iShares S&P US Banks UCITS ETF (ticker: BNKS; expense ratio: 0.35%), the Materials Select Sector SPDR Fund (XLB; 0.10%), or the Alerian MLP ETF (AMLP; 0.87%). Alternatively, you could invest in the Vanguard Small-Cap Value ETF (VBR; 0.07%), which has at least 30% exposure to these sectors and focuses on smaller-cap stocks with higher beta. You could also pair that with the iShares 1-3 Year Treasury Bond ETF (SHY; 0.15%) to manage your recession risks.

Idea #2: South Korean banks.

Forget K-Pop: Korean banks are where the excitement is at now. Henry Mallari-D’Auria, the chief investment officer of global and emerging markets equities at Chicago-based Ariel Investments, is a fan. He expects higher shareholder returns for banks to be the catalyst for higher share prices. The Korean government is warming up to the idea of companies giving some of their profit back to shareholders, but the change will likely be gradual. Case in point: Korean banks returned about 24% of their net profits to shareholders last year through dividends and share buybacks, while overseas banks returned 64%.

Two banks stand out: KB Financial and Hana Financial. Usually, when a bank's stock is selling for 60% to 70% less than it's worth on paper (i.e. its book value), that’s a red flag. It often means they're dealing with some not-so-great loans. But in Korea, it's a different story. The sector’s loan growth has been slow and steady – it’s not caught up in the kind of frenetic lending bubble you sometimes see in other places. Plus, the banks are playing it safe with mortgages, sticking to a conservative 50% loan-to-value ratio. What’s more, the sector is still cheap: the share prices of these Korean banks could double in the next 18 to 24 months and still be priced similarly or even lower than banks in other parts of the world.

Which ETFs offer a good starting point here?

To gain exposure to South Korean stocks in general, you could invest in the iShares MSCI Korea UCITS ETF USD (CSKR; 0.65%). To gain exposure to its financial sector, you could invest in the Samsung KODEX Banks ETF (91170; 0.45%) or pick and choose a few individual South Korean bank stocks.

Idea #3: Treasuries and gold.

Liz Young, the head of investment strategy at San Francisco-based SoFi, is a little more cautious, especially with market valuations so high. She recommends adding more Treasury bonds to your portfolio. She figures that Treasury yields – especially the two-year ones – won't likely climb much higher from where they are now, hovering around the Federal Reserve's key rates. Buying Treasuries now means you'll get over a 5% yield, letting you just kick back and see how things play out.

She also recommends picking up some gold. Right now, there’s a ton of uncertainty about which way interest rates will move next, and that’s already injecting some fresh volatility into the currency market. Let’s face it: currencies and interest rates tend to affect just about everything, and gold can be a good hedge against that volatility.

Which ETFs offer a good starting point?

You could consider the iShares 1-3 Year Treasury Bond ETF (SHY; 0.15%) and the SPDR Gold Shares (GLD; 0.4%) to gain exposure to both assets.

Idea #4: Buffer ETFs.

Phillip Knight, managing director and partner at Houston-based Americana Partners, has his eye on something a little different: buffer ETFs, (a/k/a defined outcome ETFs). These special funds, which track indexes like the S&P 500, work a bit like insurance for your stocks. They limit your potential losses, while also capping your gains.

For instance, if the market keeps rising, you can enjoy gains that match the market over the next year, but only to a certain limit – typically around 12% to 14%. But, hey, that's actually lower than the best-case projections from most Wall Street analysts right now. And if the two-ton economic weight of higher interest rates sends the market tumbling by 10% or 20%, these ETFs would give you a “buffer”, protecting you from the first 15% of market losses. So, if you hang onto these ETFs for their full 12-month term, you're almost guaranteed to perform better than the market if the index goes south.

These buffer ETFs are easy to buy and sell, but they don’t come cheap: they carry a fee that’s typically around 0.85%, which is a lot higher than regular index funds. Still, buffer funds could be a smart choice if you're on the cautious side and don't mind sacrificing some potential returns to protect against losses. They could also be a good fit if you're looking for stability during bumpy market times or if retirement is on the horizon and you don’t mind paying to safeguard your nest egg.

Which ETFs offer a good starting point?

You could consider the Innovator US Equity Power Buffer ETFs – for September (PSEP), November (PNOV), or December (PDEC). They each carry an expense ratio of 0.79%.