How I will invest $2 million in 2025? For strong capital gains while managing risk?

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I received this question in the Telegram group this week:

Hi all, don’t mind this fairly elementary post.

I’m a local Singaporean (late 20s)  that’s back to SG and having my first job here again. 

Would like to grow my money for a house while I’m working full time.

I’m on endowus && stashaway “DCAing”, but the process seems slow.

And that really got me thinking.

Let’s say I were looking to grow my money aggressively for the next 6 – 12 months.

How would I go about investing my money?

What are the possible scenarios in the next 6 – 12 months?

I wrote a macro update for FH Premium subscribers early this week.

In there, I set out 3 potential scenarios for how the next 6 – 12 months might play out:

1.Inflation goes up

2.Inflation continues going down (or stabilises):

a) with rise in unemployment (hard landing)

b) no rise in unemployment (soft landing)

As to the probabilities of each?

This was what I wrote:

I would say the updated probabilities are roughly:

  1. Inflation – 25%
  2. (a): Hard landing – 35%
  3. (b): Soft landing – 40%

Key events to watch out for?

The key events that will influence the outcome are:

  1. How quickly Powell cuts rates (market has now priced a 25 bps cut for Nov due to the strong jobs report)
  2. Who wins the US elections in Nov (Trump would be bullish for the US economy, Harris would be more of the same)
  3. Whether China follows through on its fiscal/monetary stimulus (a follow through would be very bullish for Asia/commodities given the size of China’s economy)
  4. Wildcard – any escalation in the Middle East conflict

How would I position my portfolio?

As you can see, there’s a very wide range of potential futures that can play out.

On one extreme if Trump wins the elections, Powell cuts rates aggressively, China stimulates, you may well have a reacceleration of inflation in 2025.

On the other extreme if Harris wins, Powell cuts less than expected, China disappoints on stimulus, you may well see accelerating unemployment in 2025.

So what’s an investor to do in times like that.

As shared with FH Premium readers:

“The more I think of this, the more a barbell kind of approach makes sense.

I want to position for both a soft landing, and a hard landing.”

How I would invest $2 million in 2025? For strong capital gains while managing risk?

Simplistically, I split the $2 million into 2 parts.

Half would go into investments that do well in inflation / soft landing.

The other half would go into investments that can hold their value (or benefit) in a hard landing.

Here’s roughly what I came up with:

Asset ClassAmountPercentage
Inflation / Soft LandingBitcoin (or Gold (or both)) $              200,000.00 10.00%
US Tech Stocks $              300,000.00 15.00%
US / Singapore Stocks (small – mid cap) $              300,000.00 15.00%
Commodities $                50,000.00 2.50%
China / Japan $              150,000.00 7.50%
Hard LandingCash $              400,000.00 20.00%
Intermediate duration Bonds  $              300,000.00 15.00%
REITs $              300,000.00 15.00%
Total $           2,000,000.00 100.00%

Bitcoin (or Gold (or both))

Okay I know a lot of you may ask why Bitcoin.

Own the assets that give you the most “bang for your buck” – for your risk appetite

Generally speaking once you have decided on your risk appetite.

You want to gain exposure to the asset class that gives you the most “bang for your buck”.

Just to give an example.

Let’s say if Trump wins, the US economy avoids a recession, and Powell cuts rates 6 times in the next 12 months.

Which will go up more in that scenario.

A Singapore bank stock, or Bitcoin?

I’ll venture the latter – and for my level of risk appetite I thought the exposure makes sense.

But… risk management is key

But on the flipside, if the US economy enters a recession, which do you think will drop more – a Singapore bank stock, or Bitcoin?

While higher volatility asset classes like Bitcoin give you more upside potential, they come with more downside potential.

So you need to be very careful with risk management (in position sizing and cutting losses).

And recent price action for Bitcoin has been worrying, so some caution is warranted.

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What about gold?

If you’re not comfortable with the volatility from Bitcoin – I think gold works as well.

It’s funny but Gold’s price is up a whopping 25% year to date in SGD terms.

That’s higher than the performance of the S&P500.

But where it is today – the market cap of gold is $18 trillion, vs $1 trillion for Bitcoin.

If gold doubles from here that’s another $18 trillion in market cap, which would be a humongous move.

If that happens, Bitcoin would probably be up 3-5x (or more). 

That’s what I mean by bang for your buck.

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US Tech / Singapore Stocks (small – mid cap)

From a diversification perspective, I didn’t want too much allocation to Bitcoin / Gold as well.

Ultimately none of these asset classes generate cash flows, and in the longer term you don’t want to hold assets that don’t generate cash flows (because longer term you want to bet on human ingenuity / innovation, and not just money printing).

Almost 30% or $600,000 of the portfolio goes into stocks.

Generally speaking the big buckets that I like today are:

  1. Cyclical stocks (eg. Banks, industrials, aerospace etc at the right valuations)
  2. Tech stocks with exposure to the AI Capex cycle (at the right valuations)
  3. US small – mid cap stocks (valuations are cheap, and if Trump wins this sector might just fly)

You can refer to the Stock Watch for the exact list of stocks I am keen on.

To clarify when I say small to mid cap I generally mean the <$100 billion range (possibly up to $200 billion).

For the simple reason that I think valuations are more attractive in this space.

Some US stocks (AI especially) are trading at very high valuations, and that makes me nervous if we get a correction.

Commodities

For what it’s worth I’m less bullish on commodities here, and I locked in profits on a good chunk of my commodities / oil positions.

The problem with commodities (eg. Copper) today is that the worst of the inflation wave is over.

For a sustained bull run for commodities here, I do think you need to see a China recovery.

If there is a China recovery, I’m better off just buying China tech stocks instead.

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And with stuff like Oil, there is all the OPEC+ supply risk to worry about.

Oil has been propped up the past 12 months because of Saudi supply cuts.

These supply cuts have come at the expense of Saudi market share – how long would they keep this up?

And even with Iran firing missiles at Israel, oil prices are still down significantly from the highs – not a bullish sign.

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I still like commodities in the mid term, and I want some exposure in case I am wrong.

But short term I don’t see a need to be overweight commodities.

But who knows, maybe Israel will bomb Iranian oil facilities tomorrow and Iran blockades the Strait of Hormuz sending oil to $200 and I look like an idiot.

That’s a risk I have to live with.

China (or Japan)

I find China (or Japan) a very useful diversifier to US and Singapore stocks.

Whereas interest rates in Singapore are very much tied to the US (and therefore closely tied to the US business cycle).

Both China and Japan are on very different monetary cycles from the west.

As shared, my preliminary views is that we may have seen a policy bottom for China.

If so, there could be a lot of upside for China given how cheap valuations are.

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But as I shared in my China article last week, the structural problems facing China are very real, and will not be solved overnight.

And they require concrete actions from policy makers, not just empty talk.

Will we see concrete actions, enough to reverse the deflationary spiral?

Only time will tell.

So the position needs to be sized small enough that I can take the loss if I am wrong, yet large enough to have decent upside if I am right.

Assets that would benefit (or hold its own) in a Hard Landing

So that’s the half that would do well in inflation or soft landing.

What about stuff that can hold its own in a hard landing?

Asset ClassAmountPercentage
Inflation / Soft LandingBitcoin (or Gold (or both)) $              200,000.00 10.00%
US Tech Stocks $              300,000.00 15.00%
US / Singapore Stocks (small – mid cap) $              300,000.00 15.00%
Commodities $                50,000.00 2.50%
China / Japan $              150,000.00 7.50%
Hard LandingCash $              400,000.00 20.00%
Intermediate duration Bonds  $              300,000.00 15.00%
REITs $              300,000.00 15.00%
Total $           2,000,000.00 100.00%

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REITs

REITs is somewhat controversial for this bucket, because in a recession / market risk off, I’m pretty sure the REIT prices will fall.

The flipside is that if we get a recession, interest rates will be slashed to zero.

And after that initial sell-off, that low interest rate climate on the other side could be very beneficial for REITs.

So there is some nuance here, and you definitely want to pair it with cash / bonds.

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Intermediate Duration Bonds 

I will write on this further in tomorrow’s article.

But I like intermediate duration bonds with a 2 – 4 year duration at this point in the cycle.

They are long enough to “lock in” yields in a falling interest rate climate.

Yet not too long to suffer capital losses if interest rates go up.

Icing on the cake is that if interest rates continue to drop – you may even see capital gains potential.

I’ve been getting a lot of questions on intermediate duration bonds, and I’ll discuss more on potential options tomorrow.

Cash

Funnily, cash is actually the biggest asset class at 20% of the portfolio.

Cash today is a lot less attractive than it was 12 months ago, simply because of falling short term interest rates.

12 months ago you were getting 4% risk free on a T-Bills, today it’s 3% – a 25% fall in interest.

It’s exactly for that reason that I’ve shifted a lot of cash over into intermediate duration bonds.

But at the end of the day, I think cash is still an acceptable option.

You can still get about 3% yields on SGD for not a lot of effort, for very low risk (possibly risk free).

And given how rich valuations are for assets across the board, holding comfortable cash gives me a lot of optionality based on what happens next.

What is the biggest risk with this portfolio?

Now what’s the biggest risk for this portfolio?

I would say the biggest risk for this portfolio is inflation.

If inflation picks up in 2025, and Feds are forced to pause rate hikes (and worst case hike again).

I don’t think this portfolio will do very well – as the Bitcoin / US Tech / REITs may underperform in a higher rate environment, and there’s not enough commodities to hedge the higher inflation.

Sure the cash would benefit from the higher interest rates, but they won’t be enough to hedge against the losses in the Bitcoin / US Tech / REITs.

In some ways that is by design, because I think the soft landing / hard landing events are more likely, hence I built the portfolio to position primarily for those events (and less for inflation). 

By recognizing this problem though, I can then prepare for it.

And I think the solution to this would be active investing.

If I see signs that inflation may pick up again in 2025, I need to make active adjustments to the portfolio to hedge against that event.

Perhaps toning down the Bitcoin / US Tech, upping exposure to the banks / cash / commodities, and so on.

I share weekly updates on changes to my investment portfolio on FH Premium, so do sign up if you are keen.

Closing Thoughts: Coming back to the reader’s question

Coming back to the reader’s question:

Hi all, don’t mind this fairly elementary post.

I’m a local Singaporean (late 20s)  that’s back to SG and having my first job here again. 

Would like to grow my money for a house while I’m working full time.

I’m on endowus && stashaway “DCAing”, but the process seems slow.

Okay I get the irony that I just wrote a post on how to invest $2 million to respond to a reader in their late 20s starting their first job in SG (it’s just easier to use round numbers you see – $1 million for each of the 2 segments).

But I would say that it’s less the amount you are investing, and more the mindset you are investing with.

If you are looking to build wealth aggressively, it doesn’t matter if you are investing $100,000 or $10 million.

The logic and mindset is the same.

I set out a broad framework above on how I am approaching the next 6 – 12 months, and investors can adapt accordingly based on their personal situation / views.

If you want to go all-in on a soft landing – just tweak the allocation accordingly.

Final point I would add – is that if you want to build wealth aggressively.

You need to concentrate your bets.

Make big and targeted bets, and watch them very closely (to manage risk aggressively).

After you get rich, and you want to reduce risk to stay rich – then you diversify.

As to what is your definition of “rich”, that’s not a question I can answer for you. 😉

Some people are happy with a kopi-o at the kopitiam, some people want weekly Michelin star restaurants.

Find out what you want, and invest accordingly.

This post is written on 11 Oct 2024 and will not be updated going forward. My latest views on markets, my Stock watchlist and full Personal Portfolio, are shared on FH Premium.


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4 COMMENTS

  1. I think if you’re just starting to work, you should focus on your career to increase your income which allows you to allocate more to your investments

    At the same time, do your side stuff to earn more income

    Investments is only one side of the story

  2. If the mad guy wins the election, stock market will crash if inflation and interest rate shoot to say 10%. Everything related to China he wants 50 to 100% tariffs, even those made by friend shoring.

    • I suspect he talks a big talk, but the actual implementation will be a lot less big.

      But hey we’ll find out the outcome in less than a month, and I would expect it to have a big impact on markets.

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