How to invest $100k safely

In an environment where equities hover at all-time highs, inflation whispers of a comeback, and rates begin to ease, investors face a familiar but unnerving question: how do you deploy capital without being caught off-guard?

To answer these burning questions, I reached out to Andrew Wielandt, Director and Senior Adviser at DP Wealth Advisory. Wielandt argues that the key lies in caution, flexibility, and a willingness to act when opportunity strikes. 

Drawing on decades of advisory experience, he outlines a portfolio blueprint for risk-averse investors, explains why cash isn't a lazy choice, and shares his strategy for navigating volatile markets. 

We’re right in the heart of a unique environment – equities at all-time highs, inflation may be returning, rates being cut, valuations stretched? Generally speaking, how are your investors feeling and responding?

Clients remain cautious, not so much of the valuation piece (markets will do what markets will do), I think they are more concerned about the geopolitical moves at the moment (Ukraine, Middle East, does something happen with Taiwan, etc).

Valuations for US tech do seem "fulsome", and to that end, we've been allocating away from tech and either using Talaria Global Equity Complex ETF (CBOE: TLRA), which is significantly underweight tech (added benefit of an income strategy using options) or other ETFs away from the US, such as Vanguard All-world Ex-US Shares Index ETF (ASX: VEU) (ex US World) or iShares MSCI Japan ETF (ASX: IJP) (Japan).

We have also been using particular managers who have a bias towards value or who have a track record of having lower downside in times of market uncertainty, like Milford Australian Absolute Growth Complex ETF (ASX: MFOA).

For those who are more cautious, what strategies have you been employing?

My favourite flavour of ice cream is vanilla, so we as advisers are inherently more cautious to begin with!

The first line of "defence" is having a more cautious asset allocation across portfolios. As an example, we are around 12% cash in our growth portfolio and 17% cash in our balanced portfolio. Whilst cash rates are starting to fall, we've enjoyed above average cash returns with no risk in times of higher interest rates.

The second line is using a barbell strategy of a mix of passive, low-cost market following ETFs such as STW for the ASX exposure and VEU and IHVV for global exposure, along with active managers to provide a blended return across each asset class.

The final line of defence is a mix of factors within the portfolio positioning across asset classes - be it growth, quality and value to ensure we've got the right mix of investments to deliver better risk-adjusted returns for our clients.

If a client who is quite risk averse walked into your office tomorrow with $100K and said that they wanted to do it ‘safely’ (looking for 5-7% per year for the bulk (70%) of the portfolio but happy to take some risk in the tail (30%)), what would the portfolio look like?

I think the (balanced risk) portfolio would look something like this for the 70%

• *SPDR S&P/ASX 200 ETF (ASX: STW) 7.5%
• Milford Australian Absolute Growth Complex ETF (ASX: MFOA) 7.5%
• iShares S&P 500 AUD Hedged ETF (ASX: IHVV) 5%
• Vanguard All-world Ex-US Shares Index ETF (ASX: VEU) (ex US World) or Talaria Global Equity Complex ETF (CBOE: TLRA) 5%
  
• *VanEck MSCI International Quality ETF (ASX: QUAL) 2.5%
• iShares MSCI Japan ETF (ASX: IJP) 2.5%
• Janus Henderson Tactical Income Fund (ASX: JHI02) 12%
• Global X US Treasury Bond (Currency Hedged) ETF (ASX: USTB) 12%
• *Betashares Australian High Interest Cash ETF (ASX: AAA) 14%
• Cash 4%

For the "risk" tail, I would be more inclined to consider either thematic ETFs or some long/short ETFs/LICs

• *Regal Investment Fund (ASX: RF1) 7.5%
• *Plato Global Alpha Fund Complex ETF (ASX: PGA1) 7.5%
• *L1 Long Short Fund Limited (ASX: LSF) 7.5%
• GOLD 2.5%
• *Betashares Global Cybersecurity ETF (ASX: HACK) 2.5%

*Disclosure - owned in my own self-managed super fund

Why have you allocated that way?

For the balanced (our view of balanced is between 60/40 and 50/50 growth/defensive assets), we've chosen either low-cost ETFs as one part of the barbell or international, which skews away from the fully valued US market. 

We have ensured we've got exposure to either high-yielding US Treasuries (albeit watching that closely given bond market concerns over the sustainability of US interest servicing) and plenty of cash should the market correct down 20% (refer to next question). 

We've got plenty of dry power to take advantage of any pullback in say US tech back to realistic levels and we could add to our position(s) in that instance.

For the 30% "risk", I've allocated 5% to thematic HACK and GOLD but made sure 22% goes to long/short funds such as Regal, L1 and Plato who can/will take advantage of any market opportunities on either the up or downside given their ability to either go long or short sell a particular investment.

What is the game plan from here – do things change much if markets really sell off (20% plus), or keep rallying hard?

When the market corrects (not if, it's a when), then holding 12 to 17% cash (subject to the client's risk profile), holding liquid assets such as cash at bank or cash ETFS allows us to add to areas we are underweight on (e.g., US tech). 

In the short term, however, if we can make it through the traditionally "tricky" August to November period unscathed, unless some geopolitical issue takes centre stage, it is difficult to see the market pulling back in any meaningful way in the short term. 

But if it does, our portfolios are positioned ready to go!