Stock valuations are near a historic high, at about 22 times forward earnings. The peak for that ratio is 24 times earnings, so stocks in a best-case scenario only have 9% or so upside from here, points out Emily Rowland, co-chief investment strategist at John Hancock Investments.

For investors who want to take some risk off the table at this point, Rowland suggests more traditional defensive plays. I spoke with Rowland about portfolio strategies on a recent episode of my Money Life podcast.

“We would be looking at alternatives as potentially an equity replacement rather than a fixed income replacement, given those rich valuations, looking into areas like infrastructure-related assets,” she said.

“Think about your toll roads, your data centers, even utility plays based on the demand for power that we’re seeing. Those are lower beta, more defensive businesses. They pay dividends. We think that’s an area that may deserve a look in portfolios,” she said.

These alternatives can help mitigate volatility in your portfolio. They can help bring down the overall beta of your portfolio, meaning reducing its sensitivity to the broader stock market overall.

“If you know you want to bring down the beta, finding a strategy that invests across a multitude of alternatives [is best] because we know how hard the due diligence in that space is to provide a smoother ride,” Rowland said.

A fixed-income allocation is important, as well, Rowland said, given the aggregate bond index is sitting just atop 5%. “We do like the entry point now. We think that’s a nice income stream to lock in for clients as we look forward into the rest of this year.”

All of that is not to say the stock market overall can’t continue to climb in 2025. Rowland feels tech earnings will hold up quite well, but she says the market will have more positive breadth across sectors in the S&P 500: “Areas like industrials are seeing positive earnings growth trends. Health-care stocks. Midcap stocks.”

“So it’s about identifying quality, those are companies with great balance sheets. They have a lot of cash. They don’t need to contend with that higher cost of capital,” she said.

While investing outside the U.S. is often considered a good alternative strategy, Rowland says even with current political uncertainty the U.S. has major advantages.

“I’m not saying it’s great in the U.S. but, on a relative basis, better economic growth, better earnings growth, potential for a modestly stronger dollar is sort of the cherry on top of our analysis. All of that is bringing us to the United States. We still have international equities in the portfolio and our recommendations, it’s just a modest underweight given those trends,” she said.

For more investing insights listen to the full interview with Emily Rowland

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