Investors may be in for a bumpy ride next year, but there are ways to maximize returns without taking a lot of risk. While stocks are considered risky assets, moving everything into fixed income is not the best way to boost your portfolio, experts said. Instead, a balanced approach that incorporates several different assets can help minimize risk and goose returns, they said. Strategists are expecting some volatility in the markets in 2025, according to the CNBC Market Strategist Survey released earlier this month. The average Wall Street forecast shows the S & P 500 ending next year at 6,630, the survey found, but not without some volatility throughout the year. Bonds are also expected to hit some bumps, but they are still paying attractive yields. CNBC Pro spoke with some financial professionals about where to invest $50,000 in 2025 to get the biggest returns with the lowest risk. Go heavy on fixed income While the mix of 60% stocks and 40% bonds is thought of as a typical balanced portfolio , those with a lower risk appetite may want to consider a higher allocation to fixed income, said certified financial planner Colin Farr, founder and advisor at Sullivan Farr Wealth Advisor. He considers a 60% allocation to bonds and 40% in equities as the most aggressive on the conservative spectrum. Investors can even go as far as just putting 10% in stocks and 90% in fixed income, he said. “It depends on everyone’s individual situation,” Farr said. “Stocks over time are going to be your main driver of growth in a portfolio and main inflation hedge.” For those who want little risk, money market funds can still be very attractive for short-term cash needs, he said. Yields on the funds once topped 5%, but have come down as the Federal Reserve cut interest rates since September. The annualized seven-day yield Crane 100 Money Fund Index , which is based on the largest taxable money funds, is currently 4.26% . For longer-term fixed income investments, Farr suggests investment-grade corporate bonds and municipal bonds for those in higher tax brackets. Within stocks, he would overweight the United States over international stocks. Investors can get exposure to stocks through index funds like the Vanguard S & P 500 ETF (VOO) and the Invesco QQQ Trust ETF (QQQ), which tracks the Nasdaq-100 index, Farr said. The former has a total return of 25% year to date and 0.03% expense ratio, while the latter has gained 27% and has a 0.20% expense ratio, per Morningstar. VOO YTD mountain Vanguard S & P 500 ETF However, if investors want to build out a slightly more sophisticated equities portfolio, they can sprinkle in some sector-specific ETFs, like the Vanguard Financials ETF (VFH) or the iShares U.S. Aerospace & Defense ETF (ITA), Farr added. Farr expects financials to perform well next year given the interest-rate environment and potential deregulation when the Trump administration comes to the White House. The defense sector may be poised to benefit from an increase in government defense spending, he said. Leaning on money markets, mixing in stocks Cathy Curtis, founder and CEO of Curtis Financial Planning, likes more of an even split between stocks and fixed income for those who don’t want to take a lot of risk. She broke down her portfolio into specific investment ideas. She would have her largest allocation, 26%, in money market funds . “I don’t think that will go down super fast, so you are getting a decent return with literally no risk,” said Curtis, a member of the CNBC Financial Advisor Council , referring monet market yields. Next, to handle inflation, she would turn to Treasury inflation-protected securities (TIPS). The principal portion of the securities rise and fall alongside the movement in the consumer price index. The Federal Reserve’s preferred inflation measure, the personal consumption expenditures price index, indicated a 2.4% inflation rate on an annual basis in November, the Commerce Department recently said. It came in slightly lower than expected, but is still above the central bank’s 2% goal. In addition, there is some concern that the Trump administration’s potential policies could prove inflationary. Curtis would allocate 16% to TIPS and about 5% to a gold ETF as yet another inflation edge. Then she’d turn to equities. “If you want to go for a high return you have to take a little bit of risk and lean towards a couple of sectors,” she said. She would lean towards 15% in tech and 15% in industrials. Investors can play those themes with the Invesco QQQ Trust ETF and the Vanguard Industrials ETF (VIS). The VIS has a total return of nearly 17% year to date and a 0.1% expense ratio, per Morningstar Dividend stocks can also help add yield to the portfolio, Curtis said. She’d allocate 13% to a dividend equity ETF. The Schwab Dividend Equity ETF (SCHD) has a 3.82% 30-day SEC yield and an expense ratio of 0.06%. SCHD YTD mountain Schwab Dividend Equity ETF Lastly, Curtis would have 10% in an ETF of international stocks. Something like the iShares Core MSCI Total International Stock ETF (IXUS) tracks the investments of non-U.S. equities. It has a 0.7% expense yield and total return of 2.5% year to date. “The international sector has underperformed for so long,” she said.” It is so undervalued.” A short-term high-yield play For those who are looking to invest an extra $50,000, there is one investment that isn’t getting a lot of attention, according to CFP Barry Glassman, founder and president of Glassman Wealth Services. That is short-term high-yield bonds, he said. He uses the Osterweis Strategic Income Fund (OSTIX) for this strategy. In fact, the fund is the firm’s third-largest holding, with about $150 million invested. OSTIX has a 5.82% 30-day SEC yield and 0.87% expense ratio. “It has one foot on the gas and one on the brake,” said Glassman, also a member of the CNBC Financial Advisor Council . “It owns bonds of lower quality companies that have to pay a higher yield in order to borrow,” he added. “The one foot on the brake is this investment is fairly short term with an average duration of a little over a year.” In comparison, the typical duration on high-yield bonds is around five to seven years, Glassman noted. “In five years the whole industry could be upended,” he said. “In a year or half on average, we have more visibility as to the industry and the management team has more visibility in the financials going into a year and half, versus a typical high yield fund.” However, investors should be aware that because the companies are lower quality, the fund is more correlated to stocks than bonds, Glassman said.
