"If you had $1mn, how would you invest it?" (2022 version)
Prepping for interviews in ER for different banks/firms and this question is kinda standing out the most, as most of previous answers are slightly outdated, given 2022 is uniquely bad. I think the correct answer would be more focused on asset allocation than security selection, and again, in 2022 it's a bit different.
What are your thoughts? How would you answer this?
I'm thinking this may work ---> "I would make sure to be close to 100% invested. 25% to bonds, taking advantage of higher yields and reinvestment opportunities for coupons. 75% in stocks split between index funds, value companies, and commodity companies. Value companies, like Merck for example, provide substantial upside opportunities, while material companies can yield relatively high dividends, raising chances for reinvestment. Commodity companies, especially O&G, are experiencing a rush in earnings. It makes sense to take advantage of that. A firm such as VISTA energy has impressively managed to boost earnings and increase its production, raising outlook for the future."
Thoughts?
Ok, so I am historically a mediocre investor, but happy to share my approach to this question.
I would start with an assessment of the macro economic drivers and specify that I am investing for optimal returns in the rest of '22 and through '23. I would state that due to the general sentiment that future economic conditions are highly uncertain but trending toward a recession, I would invest accordingly. If asked why that is the case, cite inflation, increase in interest rates, geopolitical tension increases, and the fact that MS / GS (I think these are the two banks) both indicated a recession in '23 with at least a 33% chance.
I would allocate my portfolio into quarters, 1/4 I would hold in cash (0% IRR but opportunity to make a market play when opportunity presents itself as recession tanks market), 1/4 I would invest in what I would consider up-side plays (~ >7%), 1/4 would be conservative (<3%), and 1/4 I would hope for moderate growth (~5-7%).
Cash (0% IRR at first, potential for 10+% IRR after crash):
Due to the fact that numerous BBs have forecasted with a greater than 33% chance of certainty a recession in '23, I would expect the equity and debt markets to decline. Therefore, I would hold 25% of my portfolio in cash so that I could capitalize on reduced share prices, and buy in at lows for companies affected greatest by macroeconomic trends. I would expect tech to get hit the hardest, and would wait until a meaningful dip took place and then invest in say APPL or GOOG.
Upside Plays (~ 7% IRR):
Again, my whole approach hinges on a recession in '23. I personally believe we are already in a recession given negative GDP growth in back to back quarters, but many would state we also need increases in unemployment. To anyone who says as much, I would say brace yourself, as that correction is coming, but is lagging behind negative GDP growth.
So where can we gamble on higher than average returns during a recession? I like companies with a low beta, so I would say A&D. Spread out my 25% upside bets across Raytheon, Northrup, BAE, and maybe one other major A&D player. Cite Ukraine / Russia and Taiwan / China as the drivers for increased global military spend. Hard to argue this at all. Cite new US military budget with a HUGE portion being allocated toward R&D spend (thanks Biden). Who is being contracted to do this R&D? Probably the primes.
Conservative Returns (~4.5%):
When a crisis looms, look to T bills. This is what my relatives with HNWs do during times of economic uncertainties. Lock in 25% of your portfolio in one year T-bills. If asked why, state if the US government fails, you have much bigger concerns than your investment portfolio's IRR.
Moderate Growth (~ 5-7%):
Look, I dont work in AM or at a HF, so many users on this site could give a better answer here. For moderate returns, I would take a dated approach and invest in businesses I think have a relatively low beta, but a higher upside than T bills. I would buy into 2-3 companies like Costco, Kroger, P&G, and General Mills. These companies should realize near-historical revenues and margins, despite a recessionary environment.
Hope this helps. Any of the more experienced investors should feel free to critique my approach.
It doesn't need to be super complicated. Your audience doesn't do asset allocation or portfolio management. As long as your reasoning is valid, keep it simple.
I would keep it vague instead of bringing up single name like Merck or Vista Energy, because your audience could drill into the thesis if they like and you don't want that.
"25% in bonds for higher yield / reinvestment. 75% stock split in index, value and commodity." is a perfect answer as long as you can explain what they are and why you want to allocate to them,
Those are the companies I actually pitched so any questions would be good haha
30 year t-bonds at 4.117%
$41,170/yr doing absolutely nothing, more than livable. Dead simple.
I'm not a materialistic man, that is more than enough to live, to save, to give. Would focus on my projects full-time and bootstrap them with savings. Yes of course inflation, but I wouldn't just be sitting around waiting for currency to devalue. I would be working and investing the entire time.
A larger sum like $10MM would go to a managed futures account at a CTA. They can spread it across equity, bonds, currencies, and commodities so I'm not completely exposed to equity. This is a lot of work, so I'd seek out a manager with a great track record. At that point, it makes more sense to hire people to invest for you than to spend years or even decades learning the same skills just to manage your personal finances.
An even better answer would be to invest it in the food bank. That would yield returns you can take with you beyond the grave. I think the point of these questions is more than just the surface level meaning of the answer.
i'd prob short oil prior to the midterms
I choose invoice discounting and stock market to double my money because I have experience in investing in these two and I doubled my money. Still, I have SBI and HDFC bank shares. Here I explained to you what is invoice discounting and the stock market and how it works.
Invoice Discounting
You can also consider investing in invoice discounting. To elaborate, a company raises an invoice against their sales they have made to its customer. However, if this company faces a liquidity issue due to cash getting tangled up in unpaid invoices, they can opt for bill discounting. In India, there are several fintech service platforms where businesses can list their invoices. You can provide such a company with a working capital boost as an investor. Notably, you do not need to pay the total amount of the invoice; rather, you get to choose how much you invest. The benefits of such an endeavour are manifold. For once, leading platforms conduct a thorough background check to mitigate the risks. Furthermore, you can get the return at a comparatively higher rate of 15% within 30 to 90 days.
Stocks
You can also consider investing in stocks depending on your financial outlook on the risk factors involved. Although an admittedly high-risk endeavour, it has the potential for significant capital appreciation down the line. When investing in this form of security, you can hold proportionate ownership of the corporation that has issued the stocks. So, when this company profits in its business proceedings, its stock value naturally increases. As a result, you will be able to receive more money than how much you had invested initially.
Best to keep it short and simple here. My answer is this:
Keep 12 months of living expenses (for me ~$100k) in cash
With the other $900k, put $10-50k in crypto (just for the FOMO), and the balance in low cost index funds (mainly domestic, rest of the world is pretty shit imo).
There are few good reasons to own bonds in your 20s, IMO. In general you want to maximize integrated equity exposure
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