One is the simple reality that stocks have outperformed in recent months by historic proportions. Valuations are elevated by many measures, likely dampening future returns.

High valuations make stocks look even less attractive, given where rates are. Risk-free yields are at some of their most robust levels in a few decades, with 10-year Treasury yields delivering annualized returns of almost 4.5%. When compared with the outlook for stocks in the years ahead, given where valuations are, the excess returns over risk-free bonds that investors can expect from risky stocks is less than 1%, the lowest since the early 2000s.

Second, Treasurys, in particular, offer a hedge to stocks in the event of a recession. When the economy enters a downturn, investors usually seek safety in risk-free assets like Treasurys, which drives up their prices and pushes down their yields, allowing those who hold them to sell them for a profit.

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And third, Kochard — the former CIO at Georgetown University and a managing director of the Virginia Retirement System — said cash assets and Treasurys provide high liquidity levels that allow investors to deploy money elsewhere if an opportunity comes up.

"We can just instantly convert it into liquidity that allows us to buy cheap assets when they sell off 20%, 30%, 40%," he said.

A 2-part approach

There are two major components to Kochard's fixed-income portfolio.

A little less than half of it is in cash or cash equivalents. The majority, meanwhile, is in an array of assets like Treasurys and investment-grade corporate bonds that reflect the 10,000-plus holdings of the Bloomberg Aggregate Bond Index. The index's holdings span a wide range of durations.

Together, the average duration of Kochard's cash and fixed-income holdings comes out to about three years. With a relatively short duration, these holdings carry less uncertainty and can be reinvested when the opportunity arises.

One way investors can gain exposure to short-term, highly liquid investments is through money market funds. Examples include Vanguard Federal Money Market Fund (VMFXX) and Invesco Government Money Market Fund (INAXX). Short-term assets like the 3-month Treasury bill and corporate paper are also considered cash investments given their very short durations.

Additionally, investors can also purchase ETFs that track the Bloomberg Aggregate Bond Index, such as the iShares Core US Aggregate Bond ETF (AGG) and the Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX).