Goldman Sachs thinks talk of financial bubbles is misguided, and the firm is encouraging its wealthy clients to keep their money in relatively expensive sectors such as U.S. technology stocks and high-yield bonds.
"Stay fully invested—we don't have bubble troubles yet," Sharmin Mossavar-Rahmani, chief investment officer for the bank's investment strategy group, said at a press briefing in New York last week.
By fully invested, Goldman means that clients with a "moderate" risk tolerance should have 36.5 percent of their portfolio in public equities, including 9.5 percent in both U.S. large-cap value stocks and the stocks of developed markets outside of the U.S.
|Asset class||Percent of portfolio|
|Investment grade fixed income (US muni bonds)||30|
|Other fixed income (U.S. high yield munis, EM local debt)||6.5|
|Public equity (US large cap value and growth, non-US developed, others)||36.5|
|Hedge funds (event driven, equity long/short, tactical trading)||7|
|Private equity/debt (buyout, energy, EM, others)||14|
|Real estate (Global REITs, private RE)||6|
(Read more: Goldman: Stay out of emerging markets)
The firm likes several relatively pricey sectors. One is U.S. technology stocks, based on strong corporate free cash flows and prospects for corporate earnings growth. The Dow Jones U.S. Technology Index has gained about 141 percent over the past five years.
Another is high-yield credit, based on relatively low leverage and yields relative to investment-grade bonds. The Vanguard High-Yield Corporate Fund is up nearly 35 percent over the same period.
A separate Goldman division issued a strong warning Monday about a likely market correction. The trading firm's strategists called the S&P 500 valuation "lofty by almost any measure" and attached a 67 percent probability to the chance that the market would fall by 10 percent or more—the technical yardstick for a correction.
Mossavar-Rahmani was clear that U.S. stocks were more expensive after a roughly 30 percent gain for 2013.
But she reiterated the four reasons Goldman believes equities are not in bubble territory, as outlined in a recent strategy report: Credit growth is not excessive; investors are just beginning to get back into U.S. stocks; views on the U.S. are not yet overly bullish; and stock valuations have not raced too far ahead.
In other words, there's too much risk and cost involved in taking money out of the stock market now.
"This is not a blind endorsement of buy and hold," Brett Nelson, a managing director in the investing strategy group, said at the same briefing. "You need to consider a broader mosaic of factors to make an underweight decision and not simply rely on valuation as a stand-alone factor."
(Read more: As bulls run, Deutsche Bank isn't so sure)
Adam Jeffery | CNBC
Goldman forecasts a 3 percent gain for the S&P 500 Index in 2014 and 4 percent annually over the next five years. Its highest projection is for the Euro Stoxx 50 Index with a gain of 10 percent in 2014 and 11 percent over the next five years. Goldman continues to advise clients against holding gold but says the price has fallen enough to stop shorting it.
Of course, the firm is aware of risks that could change its relatively bullish investing outlook. But the "low probability" of their occurrence means that Goldman is not incorporating them into their portfolio recommendations.
The risks cited include six events. First is a U.S. recession, which the bank puts at a 20 percent chance. Others include a disruptive end to the Federal Reserve's quantitative easing program; a euro zone debt crisis; deteriorating confidence in Japanese economic growth; the crash of one or more emerging market economies; and military conflict in seas off China, Iran or North Korea.
Goldman believes the economic risk of U.S. political gridlock around the debt ceiling and government shutdowns is negligible.
(Read more: Rising rates play mind games with banks, stocks)
Goldman's investment strategy group informs the advice given by the bank's private wealth management unit, which manages more than $200 billion for clients with at least $10 million in investable assets.
—By CNBC's Lawrence Delevingne. Follow him on Twitter @ldelevingne.