How to invest in today's market, according to a pro

As a financial advisor to high net worth clients at Procyon, James Diver has seen it all. But with war in the Middle East upending markets, AI causing economic chaos, and stagflation coming to the fore, it’s not business as usual these days.

“Clients are certainly freaked out,” he explained. We spoke to him about how he’s handling the upheaval, where he sees opportunities amid AI carnage, and the role of financial advisors in the era of AI.

The following interview has been edited for length and clarity.

What investing advice are you giving to your clients regarding the Iran conflict, a slowing economy, and fears about the fragility of the AI trade?

We’re pulling back a little bit on growth in tech and taking some profits, because the markets—specifically the growth sector—have done really well, averaging about 16% returns over the last two and a half years. Taking some profits from that allocation has been timely because valuations were getting a little stretched.

We’ve been reallocating a small portion of the portfolio into assets that tend to go up or remain stable when inflation increases—something that has been part of the recent turmoil in the Middle East with oil, which has kept interest rates a bit higher than expected. That includes modest allocations to 10-year Treasuries rather than longer-duration 20- or 30-year bonds, especially after seeing what happened in 2022 with long-dated Treasuries. With bond prices beaten up over the past couple of years, buying some 10-year Treasuries at lower levels has provided stability, particularly in IRA accounts.

We’ve also added a diversified basket of precious metals, not just gold but also things like platinum and silver, as part of a commodities allocation.

Overall, the shift involves taking a little profit from both the growth side and, somewhat surprisingly, from bonds, after strong total returns over the last 12 to 18 months, and diversifying into Treasuries, precious metals, and, for larger clients where appropriate, some private credit and alternative investments.

You mentioned taking profits from tech due to high valuations. What do you think is the right way to play the AI trade right now with so much angst around it?

I think with index funds and ETFs—especially in areas like software—there are a lot of similar products. Some might have 100 holdings and others 300, but when the sector is down 15–20% year to date, it reflects how much it has been beaten up. Part of that has been the sharp decline in companies like monday.com and Asana, as investors quickly realized that the coding ability of AI could disrupt those businesses, since companies or even individuals could potentially create their own project management software. That has had a quick and profound impact on the software sector.

But if you dig deeper into some of these ETFs, there are companies being pulled down largely because of that broader fear. At the same time, there are areas like healthcare software or cybersecurity [that could fare better]. It’s unlikely that the average company or person is going to build their own cybersecurity infrastructure, which creates potential opportunities after the recent declines.

Also, assets like diversified, low-leverage private credit and some private equity (despite occasional headlines like those involving Blue Owl) represent a portion of the portfolio that isn’t tied as directly to algorithmic and high-frequency trading.

It’s interesting you mention private credit because it's obviously been in the news lately. What do you think about the risks for investors, since it's so opaque?

The first layer of due diligence is finding the best managers—those with the lowest fees, lowest risk, and lowest leverage. As fiduciaries, we aren’t paid by any of the investment products or managers in client portfolios, so the starting point is always viewing opportunities through an unbiased lens. From there, we look at factors like which managers have the most assets, where inflows are going, and what the underlying holdings look like. We also rely on data and information from private credit managers, rather than chasing funds that may be up 20% in a short period of time.

It’s not a silver bullet, but with the right managers and ongoing oversight it can play a role in portfolios. That’s why our research team regularly speaks with managers—often monthly—asking tough questions about risks they see in areas like small and mid-sized software companies or commercial real estate.

A lot of investors now use AI for financial advice. What do you think the role of financial advisors is as people automate more of their money decisions?

Financial services will absolutely be impacted, and as a firm we’re thinking about how to use AI to be as efficient as possible and provide advice to clients more quickly. At the same time, many of our clients—particularly higher-net-worth clients—actually worry that we might rely on AI too much. We have to reassure them that there will always be a major human element in the decisions we make on their behalf.

Ultimately, many investors still want the human relationship, especially as wealth grows and financial decisions become more complex and emotionally stressful. For many people—particularly those closer to retirement—the idea of turning their life savings over to an AI system feels uncomfortable. Much like when people encounter a chatbot and simply want to speak with a representative, many investors still want someone who understands their situation. For at least the next couple of decades, that human connection and relationship will likely remain an important part of financial advice.