Last year, I wrote about direct indexing, a lesser-known investment method that has begun to surpass both ETFs and mutual funds in investor acceptance. One of the highlights of this approach, which traditional ETFs or mutual fund structures don’t offer, is personalization.
Our current financial environment is rife with recession concerns and inflation concerns. Today’s investors, of all experience levels, are looking for investment strategies that not only combat market volatility but also address their personal and financial values. Consumers are looking for personalization in almost every aspect of their lives. A 2021 McKinsey study (opens in a new tab) found that consumers not only want personalization, but demand it more than ever, especially in the wake of the COVID-19 pandemic and post-2020 surge in digital behavior.
Advisors expect more clients to want personalization in their portfolio
Registered investment advisors (RIAs) realize that personalization of investments is becoming more and more important. More than half of RIAs surveyed in Schwab .’s 2022 Independent Advisor Prospects study (opens in a new tab) predict customers will expect more personalized portfolios, a trend that will be led by Millennial investors.
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Access to a more personalized portfolio historically designated for ultra-high net worth investors (opens in a new tab), due to high account minimum requirements and classic technology. Today’s digital advancements in financial services have made these types of services available to investors across the entire wealth spectrum, allowing them to align their portfolios with their needs. their financial values ​​and goals.
Personalization can mean many things – building a portfolio around existing investments, following a particular investment philosophy, or aligning investments with one’s values.
Environmental, social and governance (ESG) investment approaches in particular have come into the spotlight in recent years, often getting a bad reputation as many companies are accused of falsifying ESG performance. their. According to a report from the US SIF Organization (opens in a new tab), investors held $17.1 trillion in ESG-selected assets in 2020, up from $12 trillion just two years earlier. The ESG standards are intended to help investors screen potential investments through a socially conscious lens.
Likewise, problem-based investing offers a better perspective on the concept of ESG investing, allowing investors to appreciate companies that are a good fit for specific problems and divest from others. you are not suitable. In the process, investors have more control over their holdings and can personalize their portfolio to fit their particular views. Issue-based investing is typically enabled with a live index or thematic ETF.
Many personalization options available
Thematic investments in general have been increasingly adopted, especially in exchange-traded funds (ETFs). Along with more adoption, there has been a significant increase in the options available. Today, an investor can find day-to-day options like industry and sector funds or more esoteric options, like K-Pop-focused funds. (opens in a new tab) (Korean pop music) or companies that appeal to Gen Z.
While not without risk, personalizing one’s investment can also lead to better results. One of the biggest drags on investor returns is poor investment behavior – things like selling as a reaction after the market has dropped or waiting to invest cash. The drag on returns from poor investment behavior and other factors can be 1.7% or more (opens in a new tab). A custom-built portfolio that reflects an investor’s situation and perspective can help a person stick to their investment strategy when the market gets tough.
All of this means that with personalization options now available to investors regardless of their financial threshold, why not make your investments work for you and complete the results. Your personal scene? Talk to a financial advisor about some ways to align your financial plan in a way that aligns with your values ​​and goals.
This article was written by and represents the views of our contributing advisors, not the Kiplinger editorial team. You can check the advisor record with the SEC (opens in a new tab) or with FINRA (opens in a new tab).
