Where to Invest $10,000 Right Now
Five veteran investors share their best ideas.
Illustration: Steph Davidson
Get our new personal finance newsletter delivered weekly to your inbox. Sign up here.
It was a year to forget and a market to remember.
Stock markets finished the year by adding to gains they had already made during the height of the pandemic. Positive news on Covid-19 vaccine trials helped lift markets in the fourth quarter, with the MSCI World Index up 13%, the S&P 500 up 11% and the “it” stock of the year, Tesla, up 58%.
Relief about the start of vaccination rollouts, though, was quickly met with news of a variant strain of the coronavirus that led to lockdowns in countries including the U.K., Germany and China. While negotiators struck a Brexit deal, instability ruled the day, with an insurrection in the U.S. Capitol, emerging markets groaning under debt and a still-nebulous relationship between China and the U.S.
That’s an unsettling picture. But even now, money managers in our quarterly panel see pockets of opportunity. The panelists highlight investments that range from high-yield municipal bond funds to equities in Japan and Vietnam. For those who want to use exchange-traded funds to invest in these ideas, Bloomberg Intelligence ETF analysts Eric Balchunas and Morgan Barna suggest funds that can serve as good proxies.
This quarter, we asked panelists a second question: If another $10,000 fell in their lap (it’s a nice fantasy), and assuming they’d already given to charity, what creative ways would they try to put that money to work, beyond traditional investments? Answers ranged from going long on rare scotches and bourbons to investing in a landscaping project with succulents.
Before committing money to the markets, be sure you’ve stocked up on emergency savings — ideally, at least six months’ worth of expenses. If you’ve nailed that, as well as “The 7 Habits of Highly Effective Investors
,” you’ve built a good margin of safety.
Buy the New Leaders
Investors face two big questions in 2021: Will the economy continue to recover, and has the market rally gone too far? My own view is that a strong economy will lead to further market gains, albeit with different leadership. Given this dynamic I would look for market segments that trailed last year but will benefit from an accelerating economy. This leads me to favor industrials.
Starting with the broader economy, while the near-term trajectory of the virus is a real risk, growth should accelerate thanks to the vaccine rollout, massive stimulus, rock-bottom interest rates and strong demand from consumers.
The U.S. consumer is in surprisingly good shape. While unemployment is elevated, jobs are returning. Households are further supported by manageable debt levels, record-low debt servicing costs and the highest savings rate since the early ’70s.
Household demand, particularly for durable goods, has supported manufacturing. In August, the new-orders component of the ISM manufacturing survey hit its best level since 2003, and recent data confirms that orders remain robust. A combination of low inventory levels and solid spending should continue to support manufacturing.
How to play it with ETFs: Invesco DWA Industrials Momentum ETF (PRN) gets the nod from Balchunas and Barna of Bloomberg Intelligence. The fund posted a gain that topped 33% in 2020, which outpaced the broader sector by more than 18%. The fund holds at least 30 securities that exhibit the best relative strength from the benchmark, rebalancing quarterly. The $190 million fund has an expense ratio of 0.60%.
Performance of last quarter’s ETF plays: The ETF suggested by Balchunas and Barna, the Invesco Dynamic Semiconductors ETF (PSI), had a 31.8% gain in the fourth quarter.
Another way to play it: Go long on rare scotch and bourbons. In 2000, my parents were kind enough to gift me a bottle of 25-year-old Macallan scotch. At the time, a bottle sold for around $300. Today you’re lucky to find one for $2,000. For investors with richer tastes, prices go much, much higher. A bottle of 50-year Macallan lists for around $80,000. And anyone who’s recently attempted to find a bottle of Pappy Van Winkle bourbon knows that it’s like searching for a unicorn. The Fed may print money with abandon, but distillers seem to know how to limit supply.
Follow the Money — to Renewables
Renewable energy is a snowball-turned-avalanche. “Net-zero” carbon-emissions goals have become the norm with the European Union, the United Kingdom, Japan and South Korea targeting 2050, while China is aiming for 2060. Under President Joe Biden’s administration, the U.S. will likely announce a similar net-zero goal for 2050. The subsidies and investment spending needed to achieve this global energy transition could add up to trillions of dollars. And with more production, renewables such as solar and wind have reached cost parity with fossil fuels, no longer needing help from subsidies.
Admittedly, many companies that stand to benefit have seen their share prices reflect this bullishness. Yet some bargains remain, such as the European power utilities that are rapidly transitioning to solar, wind, hydro, geothermal and other renewable-energy sources. The better-capitalized integrated oil and gas majors may also benefit, since they have the cash flow and technological capabilities to diversify their portfolios away from fossil fuels.
How to play it with ETFs: Balchunas and Barna point to the First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund (GRID). The fund hasn’t appreciated as much as iShares’ Global Clean Energy ETF (ICLN), whose solar-power producing constituents have soared. GRID holds companies in the smart-grid and electrical-energy infrastructure sector, including storage for clean-energy alternatives. It has tiered weighting, with 80% of holdings in pure-play firms. The $176.5 million fund has an expense ratio of 0.70%.
Performance of last quarter’s ETF plays: Balchunas and Barna’s choice, the iShares MSCI Europe Financials ETF (EUFN), rose 27.6% in 2020’s fourth quarter.
Another way to play it: I’d buy airline tickets for travel in the second half of 2021. Round-trip business-class tickets from Los Angeles to London (Heathrow), with no change fees, are priced so low that the $10,000 will more than cover two tickets — with enough left over for several nights in a luxury hotel. In the pre-pandemic travel heyday, one business-class ticket cost $10,000, with the burden of change fees. When airline travel demand recovers in 2021, expect ticket prices to rise.
Look to Vietnam
Vietnam is among the more attractive equity markets as we exit the pandemic-ridden year of 2020 and enter 2021 hopeful that the worst is behind us.
The country continues to deliver among the highest GDP outcomes, with our most recent growth estimates at 3% for 2020 and 7-8% for 2021. This growth has been underpinned both by favorable domestic drivers such as demographics, consumption and infrastructure as well as a steady improvement in economic freedom and policy variables.
Vietnam has gone from a position of strength to even greater strength as a participant in major regional trade deals. In addition, in 2020 policymakers agreed to, and began implementing the EU-Vietnam free trade agreement. And while far from unscathed during Covid-19, Vietnam has demonstrated an ability to weather and navigate the pandemic’s challenges relatively efficiently.
Despite the recent rebound and rally, Vietnam’s equity market is priced more than 40% below fundamental value. It will continue to benefit from increased trade and supply-chain diversification. As capital markets develop and expand, so will investment options. Investors can obtain broad exposure through locally based and managed funds trading on the London Stock Exchange such as Vietnam Enterprise Investments Ltd. (VEIL.LN) or VinaCapital Vietnam Opportunity Fund Ltd. (VOF.LN). The lone U.S. ETF is the VanEck Vectors Vietnam ETF (VNM; not to be confused with one of Vietnam’s larger companies, Vinamilk).
How to play it with ETFs: VanEck Vectors Vietnam ETF (VNM) tracks the country’s listed equity market. The largest sectors are real estate (25%), food (14%) and electronics (14%). The expense ratio is 0.64%.
Performance of last quarter’s ETF plays: The VanEck Vectors ChinaAMC China Bond ETF (CBON) gained 4.8% for the quarter.
Another way to play it: To create a relaxing, stress-free environment for you and your family, there is nothing better than investing in aquariums. If $10,000 drops in your lap, I recommend buying a fish tank. You could consider a saltwater, mini-reef version. It’s important to buy good equipment, practice regular testing and maintenance, and treat the fish like household pets. Choosing your inhabitants is part of the fun, but I find that a broad ecosystem — even if small — is fun to watch. Shrimp, sea urchins, coral and fish provide a fascinating environment to observe. Everything is in a continual state of cooperation and conflict, a complex symbiosis. Best yet, the benefits of a complex, adaptive system — much as capital markets — afford entertainment, challenge and knowledge. It pays big dividends over the long term.
Beware Tech, Favor Japan
The strong way that markets finished 2020 suggests that a lot of the good news for the year ahead has already been factored in — confirmed by the almost uniform optimism found in most investor surveys.
It would be easy to follow the crowd and recommend equities or Bitcoin. But the current optimism has pushed valuations for global stocks to levels higher than those seen at the peak of the tech bubble in January 2000. These valuations are often justified by policy rates close to zero. For us, justifying extreme valuations in equities with extreme valuations in bonds simply highlights the fragility of market conditions. Any change in the balance between activity and inflation could challenge these valuations in 2021.
Given the recent pick-up in Covid-19 cases in the U.S. and some European economies, we see increased risks of a brief “double-dip” recession in Western economies. Asia looks well placed to gain from any such economic uncertainty and we see Japan as a better way of playing this than emerging-markets equities, which look expensive.
A brief economic downturn might see some of the cyclical sectors that performed well last quarter — such as autos, industrials and basic materials — give back some gains, with investors likely to buy cheaper defensive sectors such as health care, food producers and personal goods. We think tech is over-owned, over-valued and subject to regulatory and tax-related risks. On a 12-month view, our tech caution favors value vs. growth, and we’d look for any short-term economic weakness as an opportunity to make that switch.
How to play it with ETFs: Balchunas and Barna say the JPMorgan BetaBuilders Japan ETF (BBJP) is one way to add passive, tactical exposure to the Japanese market. The expense ratio of 0.19% is 30 basis points less than that of the iShares MSCI Japan ETF (EWJ).
Performance of last quarter’s ETF plays: The Industrial Select Sector SPDR Fund (XLI) rose 15.5% in 2020’s final quarter.
Another way to play it: I would invest a $10,000 windfall in my own human capital and indulge my personal interest in all things related to flight. I would take the trip of a lifetime in a WWII fighter, such as a Mustang or Spitfire. However, as the rest of my family members are keen sailors, it would be great to visit one of the classic yacht regattas in the Caribbean.
Sample High-Yield Munis
Interest rates are still on the floor, and we are regularly asked whether investors should abandon all flavors of bonds. We respond with a firm “NO.” Specifically, we recommend high-yield municipal bonds.
The Covid-19 pandemic remains in the U.S., as everywhere, the dominant theme. Even so, default risk is lower than perceived as most municipalities have begun the process of cutting spending and preserving liquidity. As a result, the credit outlook has improved markedly for municipal bonds.
The second reason we recommend high-yield municipal-bond funds is their juicy tax-equivalent yields. (Interest on most state and local debt is exempt from income taxes; a tax-equivalent yield tells you what the (higher) yield on a similar taxable bond would have to be, after accounting for income tax, to offer an investor the same return.) Our top pick sports a yield of more than 3.6%, which equates to a 5.3% yield for investors in the 32% tax bracket.
Finally, investor flow keeps building while new issuance has come to a near standstill in the muni-bond market now. Until supply grows, investors will have only the secondary market to quench their thirst. Lower supply and high demand should equate to higher prices.
We guide investors to actively managed funds, where managers can add value by avoiding weak muni issuers. We recommend the Black Rock High Yield Municipal Bond Fund (MDYHX). Notably, we do not recommend an ETF as a passive approach here, as it is a sure way to underperform.
How to play it with ETFs: For those who do want to use an ETF, Balchunas and Barna suggest looking at the First Trust Municipal High Income ETF (FMHI). The actively managed municipal bond fund has a focus on high yield and currently yields 3.1%. More than 65% of the fund's positions mature in over 10 years. FMHI has $140 million in assets and an expense ratio of 0.55%.
Performance of last quarter’s ETF plays: The iShares MSCI Taiwan ETF (EWT) saw its price rise 19.4% for the quarter.
Another way to play it: I would spend absolutely every dime purchasing succulents and agave for my indoor and outdoor landscaping. They pretty up beautiful gardens and container arrangements like no other plant, are easy to grow, and can be edible, including the “prickly pear.” While you can purchase these on a budget, a beautiful outdoor landscape project can run to $10,000 or more. Well landscaped homes command 5% to 20% more in value, easily paying for the cost of installation and care. In the meantime, you’ll enjoy the unique beauty (and lower water bills).
Share this article
Stay on top of historic market volatility. Try 3 months for $105 $6. Cancel anytime.