Where to Put a Million Dollars

In today's tumultuous markets, four seasoned investors discuss where to look for the finest chances.

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Many investors are retaining higher cash reserves as American markets become uneasy due to the banking industry's turbulence, the Federal Reserve's unpredictable rate of interest rate increases, and the possibility of a recession.

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Short-term bonds as well as other cash-like securities have become more appealing as interest rates have increased, but the market instability is increasing concerns about how durable those higher yields are, especially as inflation keeps eroding returns. That money can be important dry powder to spend in more lucrative ventures for people who have the capacity and tolerance for greater risk.

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We chatted with four experts on timely suggestions that allow investors to make a $1 million worth to learn where pockets of potential can emerge in these erratic markets. Proposals range from music royalty to personal loans to investments in European venture capital.

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As we asked the professionals where they would spend a million dollars, the answers ranged from the tangible, such as purchasing a special edition luxury car, to the non-tangible, such going skiing in Japan.

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Receiving Royal Treatment

The concept: You could argue that the revenue you generate through music royalties is quite irrespective of the economic cycle since we invested in them last year. "White Christmas" will continue to be played whether there is a boom or a recession.

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The tactic: It's amazing to me how tax-efficient music royalties are. Unlike real estate, music royalties are regarded as intangible assets and are normally amortized over a 10-year period using the "straight line" approach. You can spread out the expense of what is seen as a depreciating asset over a period of ten years because a song or soundtrack may go out of favour at some point.

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Music royalties are traded similarly to fixed income; you have an expected cash flow, and if rates and royalty income decline, you can discounted them at a rate lower of current value. Unlike to high-yield bonds, however, the denominator of that bond is rather constant because people still enjoy listening to music. You must hire someone who can locate the appropriate music and work them into ads and films.

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There are additional music funds available, and we are invested with one called Open On Sunday. We were planning on a current cash return of about 8% when we made the purchase, prior to the interest rate increase. It might increase to 13% or 13.5% if the manager uses the music well. And when you receive that 8%, it's more then offset by that 10% in depreciation, so you possess something that, in terms of taxes, is as thrilling as music but as dull as a building. The extra 2% could be used to insulate other investment income.

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I heard that Sony paid a multiplier of about 30 for Bruce Springsteen's book. Music royalties have grown in popularity. Sony was in an ideal position because they operate a music label, will license their music for use in motion pictures, and, for all we know, Springsteen tunes might even appear in computer games.

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Go Secret

The concept: Private credit has grown incredibly fascinating. Regulation has caused banks to refrain from lending, and this trend has persisted since the Great Financial Crisis. Over the past ten years, the lenders of choice for middle-market businesses—which account for two-thirds of US GDP—have changed.

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The strategy: As banks continue to reduce the size of their balance sheets, additional opportunities have recently been opened for the private debt asset class. It is not as widely accessible as the stock and bond markets since the tactics are mostly offered to purchase securities or qualified buyers. Yet, it is an excellent moment to consider income-based alternatives; private credit is our top suggestion in this regard. Obviously, you must exercise caution in this situation, but since we anticipate a moderate recession, the default risk shouldn't much increase. Especially on the national squad of the capital pyramid, this is a very intriguing area.

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Over time, we anticipate high-single-digit to low-double-digit returns, with the majority of those coming from the loans' interest rates. The rate of new loans today is at its highest level in a long time, at around 11%. Leverage and the position of the loans in the capital structure will have a significant impact on returns. For a loan to be successful, the underwriting's quality is most important. To distinguish between managers, look for funds that have survived economic downturns and evaluate their cumulative loss rates.

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International Diversification

The concept: In my opinion, appropriate diversity should include organizations with a variety of market caps and styles as well as regional representation. Having little to no exposure to foreign companies is a common investing mistake. In my opinion, investors who are only focused on American companies are missing out on a lot of development from companies with foreign headquarters.

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The plan: International diversification has structural advantages. Secondly, for both economic and cultural reasons, various nations succeed in different fields. France and Switzerland are home to two of the top five luxury goods public firms in the world. The top semiconductor producer is Chinese, yet two of the most profitable automobile companies are Japanese.

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In the end, we invest in businesses rather than nations and look for substantial gains everywhere. Second, certain industries are overrepresented in American indices itself. The S&P 500, for instance, has over 25% technology as of this writing. Hence, even in a broad indices with thousands of underlying assets, you can be unknowingly assuming sector risk.

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We currently allocate between 30% and 40% of equity portfolios to foreign-domiciled enterprises. Both mature and emerging market companies are included in this. We do utilize domestic indexes because of their low costs, but when investing in emerging economies, I favor mutual funds that are expertly managed. As US public businesses are subject to a higher standard of oversight, reporting, and auditing, I wish to make use of market-specific analyst perspectives for emerging economies.

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Travel to Europe

The concept is that 2023 may be a particularly appealing vintage for the European venture capital market as it is at a compelling phase in its lifespan. Wilshire has observed the evolution of this sector firsthand, including the ten-year trend of exponentially increasing investment activity and exits exceeding €1 billion. This achievement has fueled a positive feedback loop of repeat founders, reputable investment firms, and profitable exits in rising technological clusters from Stockholm to Barcelona.

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The plan: A compelling picture of expected investment return is painted by the mix of ecosystem acceleration and secular trends in industries including fintech, e-commerce, artificial intelligence, cybersecurity, and enterprise software. This expectation has historically been met by European venture capital, which generates returns on investments that are comparable to or greater than those of US venture capital funds while reducing portfolio risk due to complementary geographic exposure.

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Notwithstanding these trends, the European market is inherently less competitive than its counterparts in North America and Asia. Although prices are typically lower for comparable deals involving comparable technology, management teams, and institutional-class co - owners, market disruption has produced a particularly convincing entry point as powder finds tomorrow's breakout victors at even more appealing valuations.

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