161: Goldman Sachs on How To Build a Modern Portfolio

0:00When you want your spring break to feel like... And your kid's pool day to feel like... And your hotel bed to feel like... Ooh, and room service to feel like... Because at Hilton, hospitality feels like...

0:19Robert Croak:Your cabana's ready. Would you like fresh towels? It matters where you stay. Book now at Hilton.com. Hilton. For this day. This episode is brought to you by Indeed. Stop waiting around for the perfect candidate. Instead, use Indeed Sponsored Jobs to find the right people with the right skills fast. It's a simple way to make sure your listing is the first candidate seat. According to Indeed data, Sponsored Jobs have four times more applicants than non-sponsored jobs. So go build your dream team today with Indeed. Get a$75 sponsored job credit at Indeed.com slash podcast. Terms and conditions apply.

0:57Robert Croak:Hey, everyone, and welcome back to the Rich Habits Podcast, a top 10 business podcast on Spotify brought to you by Public.com. By the end of today's episode, you're going to understand why trillions of dollars are shifting toward model portfolios, how institutional investors are thinking about the current macro environment, and where some of the most experienced portfolio managers in the world see opportunities across equities and fixed income. My name is Austin Hankwitz, and I'm joined by my co-host, Robert Croak. Robert is a seasoned entrepreneur with lifetime revenues of over$300 million, and I'm a multimillionaire in my late 20s with a background in finance and economics.

1:39Robert Croak:As the show name might suggest, every episode we talk about rich habits as they relate to business, finance, and mindset. So, Robert, what are we talking about in today's episode?

1:50Austin Hankwitz:Well, I'm excited because in today's episode, we're talking about something that's quietly transforming the investment industry, and that is how portfolios are actually being built. Markets are evolving quickly and technology is advancing. New investment vehicles are emerging and policy environments are shifting. And investors today have access to tools that simply didn't even exist five to 10 years ago.

2:14Robert Croak:That complexity has led to a massive shift in how financial advisors and institutions manage money. Instead of manually selecting securities and building portfolios piece by piece, many advisors are turning to these model portfolios, which can be thought of as scalable, institutional quality portfolio frameworks designed to combine equities, fixed income, alternatives, and even private markets into one cohesive investment strategy. Now, the model portfolio industry already manages roughly$2.8 trillion, and projections show that it could grow by more than 160 % in the coming years.

2:57Austin Hankwitz:Now, this might all sound intimidating, but to help us unpack what's driving this shift and how investors should think about the current market environment, we are excited to welcome Alexandra Wilson-Elisando, Global Co-Head of Multi-Asset Solutions at Goldman Sachs Asset Management. Alexandra also serves as co-chief investment officer of the platform, and she oversees portfolio construction strategies used by institutions and advisors all around the world. So, Alexandra, welcome to the podcast. We are so, so excited to have you. Thank you. I'm so, so excited to be here.

3:31Robert Croak:So one of the biggest themes right now coming out of your team is the idea that investors need what you all call a total portfolio solution. Okay, so total portfolio solution. The speed of change across the markets and policy and technology and investment vehicles has made portfolio construction more complex than ever. There's a bunch of different vehicles, a bunch of different products now. Can you explain what a total portfolio solution actually means and why this approach is becoming increasingly more important for advisors and investors today in 2026? Of course. Yeah, I think this is one of the most important conversations happening across wealth management right now.

4:15And it effectively boils down to, I'll say, one big thing, but then break it down into two angles for you. The one big thing is that a portfolio has to be better than the sum of its parts. You used to have portfolios that were coming together from the bottoms up. You had this is my equity piece. This is my fixed income piece. And you had a different correlation regime because, you know, prior to the last few years, you were operating with, you know, very low levels of inflation and interest rates close to zero. Now, the broader macro construct is that, you know, you have higher fiscal deficits, you have more political fragmentation.

4:50And then, you know, on top of it, you effectively have just this like multipolar world, more geopolitical risk. And that leads to higher levels of inflation holistically. And so that's why it's really important to have a portfolio that's looking at the totality of risks that are coming from the different elements so that you're not overlapping on something should you have an experience like we've had over the last couple of weeks where you get a pretty meaningful macro shock. The second angle of this is you want your portfolio to be an expression of the best of the availability in the market. And that is, you know, on things like large cap equity, you want efficient vehicles on spaces where you're actually rewarded for being able to pick dispersion.

5:35Something like small cap you want to be paying for in an active vehicle. You also want equal access to what's growing GDP not only now, but of tomorrow. So if you think about one of the main themes in the market is economic nationalism. And so, you know, things like defense, robotics, space. Well, most of that is accessed in the private markets right now. So you want to be able to go across the continuum of liquidity and make sure that your portfolio has the right expression of that while equally paying attention to tax considerations when you may need liquidity drawdown and overall risk tolerance.

6:13And so for us, that's where you have a portfolio that's better than the sum of its parts over time.

6:18Robert Croak:Total portfolio solution. That's really cool. I appreciate you walking through that. Can you even maybe double click on what like a model portfolio is? I know we kind of mentioned that a little bit at the beginning here, like$2.8 trillion is invested into that. We just want to make sure as we set the table for the rest of the episode that everyone understands like the idea of total portfolio solutions and, you know, what is a model portfolio and why is so much money invested into these things? So when you think about the demands on advisors right now, they're paying attention to taxes. They have to understand all the things that are happening in the world.

6:51They're trying to do generational transfers of wealth. They want to manage the whole of their practice. And the most efficient way for them to do that is to say there are people who institutionally have managed money for a very long time that have very strong portfolio construction capabilities. I'm going to outsource that via a model portfolio to them, and I'm going to focus on building out my practice. Now, the concept of model portfolio, actually, it boils down something that's pretty complicated and interesting into one small concept. But there are a full suite of risk profiles. You can customize them to a theme or sector you're more interested in.

7:31You can get more complicated and have separately managed accounts. So should you need to have muni access for tax considerations in your portfolio? If there's a theme that you're very interested in investing in, like AI over the last few decades, they can have an ETF or an expression of that for their particular practice. So it's not one size fits all. Hey, copy and paste. It can be very much customized to the client base. But it's a starting point, a institutional framework. And in our case at Goldman Sachs, it's the same exact portfolio construction we built our entire institutional outsource CIO business off of delivering that quality to the retail market.

8:13Austin Hankwitz:Yeah, and I want to jump in and click back on this. Why are we seeing such a massive shift towards these model portfolios? And what problems are they solving for advisors that traditional portfolio management doesn't? I think it boils down to I can outsource to somebody who has more levers to pull and more resources than I do in this space. I mean, if you even take the example of what's been happening in the market now, instead of trying to figure out the inflation risk to your portfolio, which ETF might give me the best access for that? How many barrels a day of oil supply do we have? Why didn't Trump refill the SPR last year?

8:53you can outsource all of that investment acumen to someone like Goldman Sachs so that you can focus on, you know, different parts of your practice. The markets are evolving so quickly. The backdrop is evolving very quickly. The demands are so heavy for advisors. And I think another really important additional layer to this is risk management. We're getting to that period where you really don't want 5 % of your portfolio determine 95 % of your performance. And if you have that institutional overlay and thoughtfulness in terms of factor risk, even now, AI has been such a wonderful thing in the market, but we've seen the other side of the AI coin, right?

9:35So what is the disruption? Who could be disrupted? And how do you, you're not gonna time the market for those things. How do you structurally build to protect yourself? And so you can even you saw that Goldman Sachs did the acquisition of Innovator ETF. You can incorporate outcome oriented like vehicles into your your model portfolio business so that you don't have to deal with each incremental headline that you're waking up to. You know that you have a portfolio that can survive the entirety of the economic cycle.

10:07Austin Hankwitz:I love this takeaway. And it's something that we pride ourselves on here at the Rich Habits Podcast is always getting everyone to understand you have to have active management and you have to have diversification. That way you can really not have to worry about having a knee jerk reaction to every headline and trying to time the market, which is impossible to do. So what a great takeaway. I really appreciate that for all of our listeners.

10:30Robert Croak:So let's now talk about the macro environment. You mentioned what's been going on the last couple of weeks. You talked about AI disruption. You guys described the current backdrop as resilient, but one that rewards discipline rather than drama. And we're seeing strong consumer balance sheets, ongoing fiscal support and massive, massive investments into areas like AI and infrastructure. So how would you characterize the current economic environment and what investors might be underestimating right now about it? So, you know, I'll talk about our view like before the last weekend, last few weeks event effectively.

11:10And then I'll incorporate that so you can see how the evolution or lack of evolution, but how one needs to think about risks and big tail risks in the backdrop we're operating in. But to your point, you know, all signs point to reflation, not just in the United States, but strong growth across the globe, in particular within Europe, the amount of spending that's coming out of Germany, the fiscal support and the incremental, you know, domestic demand in Japan. You saw, you know, pretty meaningful trends in places like Korea, who had never had attention paid to them before, and other markets that also have access to the AI theme, like China doing very well as well.

11:48We still believe in, you know, a positive cyclical backdrop. That being said, there are some risks emerging and they were emerging even before, you know, what happened in Iran. Those two risks that we were paying attention to, one was the labor market, which was starting to show, you know, that it was it was slowing. It was normalizing from what had been, you know, unprecedented levels of tightness post-COVID. And then the other layer was actually what's been happening in credit, in particular in private credit. And in the underwriting standards, the exposure, you know, statistics are showing anywhere from 20 to 40 percent of private credit is in software exposed names.

12:28Of course, not all of that's created equal. It's not hard to imagine how some of those stresses could start to build. And the main question is, are you being compensated with current valuations in the equity market or even credit spreads for what those risks are? But holistically, pretty, pretty good economic backdrop, reflationary prior to what happened in Iran. Now you bring that into the picture and the thesis starts to decay over time because higher oil prices start to be felt pretty quickly at the pump in particular. And, you know, I'd even had someone say to me the other day, like, did you realize a gas went up a buck?

13:08And so it's$20 more for me to fill my tank than it was a week ago. That starts to have instantaneous implications, right, because now you change your discretionary spend. You have to be more thoughtful about that. Our view is that this should be short-lived. And by that, I mean we're talking about weeks and not multiple, multiple months. But the situation is incredibly fluid. And as we saw in 22, those dynamics can lead to stagflationary backdrops, which puts a lot of pressure on all asset classes, especially ones that you typically rely on to protect you. And the market had already started pricing in, especially in the United States, more cuts from the Fed in line with strong growth, but inflation that had and, you know, was on a strong trajectory to decline.

13:56Robert Croak:obviously what's going on in Iran right now is very fluid and you know breaking news so we don't have to talk about that because anything we say now who knows what's going to be in 48 hours but let's go back to the what you would sort of talked about before which is just like the general macro environment right now call it q1 for the United States you had mentioned the reflationary and you also mentioned the jobs we are seeing unemployment tick up a little bit and we're seeing perhaps we'll see what inflation play some stuff that over that way but my kind of follow-up for you here is For the everyday retail investor listening right now that doesn't yet understand or maybe wants to do a better job of following the macro environment, the economy, what data sources, what headlines, like what specific?

14:39Robert Croak:Is it ISM data? Is it CPI? Like what should they be looking at on a monthly and maybe quarterly basis to kind of make sure that they're staying up to date on important headlines that are actually moving the markets and impacting their money? I think you've hit a couple of them on the head. There's a breadth of data that one pays attention to. The thing that I will highlight is it's important not to give any one single point a lot of credence. So, for example, the last labor market print in itself in isolation was a weak print. Now, the prior print was actually pretty strong. And if you smooth over three months, you actually get to like a break even rate of labor, you know, job growth about 6K rather than this like major negative number that scares everybody.

15:27And so I think it's important, you know, to watch the incremental data that's coming through, but not to hang your hat on one specific number. If a listener wants to understand what are the main drivers of the markets, listening to the FOMC, reading the minutes, that will get you a really strong idea of what people and central bank members are paying attention to to make and set policy. And in particular in the U.S., there's a dual mandate for the central bank, which is to make sure that both growth and inflation are at the right place, whereas in somewhere like Europe, they don't have a dual mandate.

16:06And so understanding that there are separate drivers across different regions as well is really important because in the United States, you're still seeing that tension between growth and inflation mandate in the rates curve. Whereas in Europe, the instantaneous move in up in gas prices and energy prices has already started to lead yield curves higher because the expectation is not now not only will they not cut, but they're looking to hike. And so understanding that there's not just a one size fits all for the U.S. and the global central banks is important as well.

16:41Robert Croak:That's very important. I appreciate you highlighting that. Now, before we ask Alexandra our next question, Goldman Sachs Research just published something that went viral in the media. They're calling it the return of physical assets, specifically tangible assets that cannot be disrupted by artificial intelligence.

16:58Austin Hankwitz:Yeah, Goldman says this one bucket from the report has outperformed capital-like companies by roughly 35 % since the start of 2025. At the same time, the software sector is currently down about 30 % from recent highs. The report basically says the market is repricing what things are worth today based on whether they're physical or hard to replace or just digital and vulnerable to disruption.

17:23Robert Croak:They call the winners heavy assets with low obsolescence or HALO as an acronym there. And we were reading this Goldman report ahead of this interview with Goldman Sachs. And we're thinking like, who should be in this report? Blue chip art. Because with blue chip art, there's a scarce supply for artists like Picasso and Basquiat. While software valuations begin to fall, a Klimt painting in 1907 just sold for$236 million in November. That's crazy. Obviously, that's an outlier. We admit that, but still the highest price ever paid for modern art at auction ever. So that's pretty low obsolescence, if you ask me.

18:01Austin Hankwitz:But that's the thing. The ArtPrice 100 Index has outpaced the S &P 500 by 64 % from 2000 to 2024. We've been using today's sponsor, Masterworks, for years now, and they let you invest in shares of museum quality artworks featuring Basquiat, Picasso, Banksy without spending millions of dollars. And this is a compelling investment most people couldn't possibly access without Masterworks. Since 2019, over 70 ,000 members have invested over$1.3 billion across more than 500 artworks. And across 26 exits to date, investors have seen net annualized returns like 14.6%, 17.6%, and 17.8%, which is definitely a great return.

18:50Robert Croak:So while Goldman and the report is telling investors to get real about physical assets and the wealthy have poured hundreds of millions into single paintings, you might want to see if art is a fit for you and your portfolio. Our listeners can skip the waitlist at masterworks.art forward slash rich habits, That's masterworks.art slash rich habits. Link in the show notes below. Go check them out.

19:15Austin Hankwitz:And always remember, investing involves risk. Past performance is not indicative of future results. See important regulation A disclosure at masterworks.com slash CD.

19:26Robert Croak:So let's now jump back to our interview with Alexandra.

19:29Austin Hankwitz:Given the macro backdrop, your team has emphasized quality over junk when it comes to risk assets. You've also talked about the importance of diversification as traditional correlations between assets begin to shift. How should investors think about owning risk intelligently in an environment where inflation variability, geopolitical tensions and supply chain disruptions are still a factor? I think just starting with it's important to not chase momentum in in certain periods. I mean, we saw space like non-profitable tech last year from, I would say, like beginning of 25 to October was up 67 percent.

20:09And then within the next month, it was down 22 percent. So if you were like the last guy in, you only experienced the 22 percent down. You know, that's what could be perceived as like good growth to have in your portfolio. But it's actually just disguised as like, you know, taking bets on names that you may not understand. They may not have good balance sheets. They're not producing cash flow X, Y, Z. You know, especially when the tide comes and goes out, anybody who's over levered and doesn't have a good business model, they're going to be extraordinarily vulnerable. So, you know, we're very focused on owning good names, good sectors, things you can believe in, physical assets, diversifying not just in the U.S.

20:49market, but across other markets where valuations were more compelling, where you could see the earnings breadth story really starting to expand. And so I would say that that's the first starting point. The other to the point on portfolio construction and diversification is we saw a tremendous rally in U.S. fixed income markets over the last effectively like the last month or so. It's quickly starting to reprice wider with higher yields, just as there's expectation that, you know, we're going to see more spot inflation coming through from what's happening with the energy market. And that happens basically overnight.

21:26Those moves in the market are really quick. So you don't want to be caught off sides. You want to make sure you own the risk that you can tolerate. And in particular for, you know, people who are in the later stages of accumulation of wealth, inflation can be, you know, very detrimental to the portfolio, to the personal portfolio, the ability to spend and keep up with purchasing power, if you will. And so having a diversified set of allocations that can enable you to withstand some of these markets or shocks as they come through is really important.

21:57Robert Croak:Very much is. And I appreciate you calling that out. I guess that's just an interesting quick follow up as you think about fixed income. I would argue that in 2022, we saw, you know, normally fixed income is sort of this like flight to safety. But then like we also experienced a weird sell off in the equity markets and the bond markets. It's like I'm assuming you guys think this, which is like fixed income still has a place in a portfolio, despite what used to be a good tradeoff of risk. Right. Fixed income still deserves to be in portfolios. Yeah, I think especially now that you're getting compensated for what is the known inflation risk.