Last year, I wrote about direct indexing, a lesser-known investment approach that started outpacing both ETFs and mutual funds in investor adoption. One of the hallmarks of this approach, that traditional ETFs or mutual fund structures don’t offer, is personalization.
Our current financial environment is fraught with recession fears and inflation concerns. Today’s investors, at all experience levels, are seeking investment strategies that not only combat the volatility of the markets, but also address their personal and financial values. Consumers are looking for personalization in most aspects of their lives. A 2021 McKinsey study found that consumers don’t just want personalization, but they demand it more than ever, especially following COVID-19 and the surge in digital behaviors beyond 2020.
Advisors Expect More Clients to Want Personalization in Portfolios
Registered investment advisers (RIAs) recognize that investment personalization is only becoming more important. More than half of the RIAs surveyed in Schwab’s 2022 Independent Advisor Outlook study anticipate clients to expect more personalization of investment portfolios, a trend that will be led by Millennial investors.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Access to a more personalized portfolio has been historically designated to ultra high-net-worth investors, due to high account minimums required and archaic technology. Today’s digital advancements in financial services have brought these types of offerings to investors across the wealth spectrum, allowing them to align their portfolios with their values and financial goals.
Personalization can mean a number of things – building a portfolio around existing investments, following a particular investment philosophy or aligning investments with one’s values.
Environmental, social and governance (ESG) investing methods in particular have made headlines in recent years, often getting a bad rap as many companies have been accused of misleading their ESG accomplishments. According to a report from US SIF Foundation, investors held $17.1 trillion in assets chosen according to ESG principles in 2020, up from $12 trillion just two years earlier. ESG standards are intended to help investors screen potential investments through a socially conscious lens.
Similarly, issues-based investing puts a finer point on the concept of ESG investing, allowing investors to overweight companies that align with specific issues and divest from those that don’t. In the process, the investor has more control over their holdings and can personalize their portfolio to match their specific views. Issues-based investing is generally enabled with a direct index or thematic ETFs.
More Personalization Options Are Available
Thematic investments in general have seen increased adoption, particularly in exchange-traded funds (ETFs). Along with greater adoption, there has been a meaningful increase in the options available. Today, an investor can find workaday options like sector and industry funds or more esoteric choices, like funds focused on K-Pop (Korean pop music) or companies that appeal to Gen Z.
While not without risks, personalizing one’s investment might also lead to better outcomes. One of the biggest drags on investor returns is poor investing behavior – things like selling as a reaction after the market has already dropped or waiting to invest cash. The drag on returns from poor investment behavior and other factors can be 1.7% or more. A custom-built portfolio reflecting an investor’s situation and views can help one stick with their investment strategy when markets get rocky.
All this is to say that with personalization options now available to investors no matter their financial threshold, why not make your investments work for you and your personal situation? Talk to a financial adviser about some ways to tweak your financial plan in a way that is aligned with your values and goals.
-
4 Career Moves to Make Now if You're Worried About a RecessionWorried about a recession? These steps to protect your job prospects will help you professionally whether a downturn develops or not.
-
How StoryCorps Works and How You Can Tell Your StoryStoryCorps has recorded conversations between thousands of people, and anyone can participate. National facilitator Alan Jinich explains how to share your story.
-
I'm a Retirement Psychologist: Here's Why Doing What You 'Ought' in Retirement Beats Doing Whatever You WantTrue retirement freedom isn't about simply doing whatever you want, but about finding purpose and direction through commitments that align with your deepest values and allow you to contribute meaningfully.
-
Tactical Roth Conversions: Why 2025-2028 Is a Critical Window for RetireesThe One Big Beautiful Bill (OBBB) extended today's low tax brackets, but they may not last. Here's how smart planning now can prevent costly tax surprises later.
-
Ready to Retire? It's Not Too Late to Convert to a Roth IRAMillions of Americans are turning 65 this year. If you're retiring soon, don't dismiss the idea of a Roth conversion — it could still be a smart move even now.
-
I'm a Financial Adviser: Three Things You Will Wish You Did Before the Fed Cuts Interest RatesWith potential interest rate cuts on the horizon, you might want to lock in today's higher yields and consider adjusting your asset allocation.
-
Simple Ways to Save on Back-to-School Shopping This YearSet a budget and stick to it, scour the house for what you already have, decorate backpacks and lunch boxes with your kids and consider buying some items during holiday sales.
-
The Seven-Day Financial Reset: A Simple Plan to Get Control of Your Money, From an ExpertSometimes, getting unstuck requires a reset. These practical steps can help you tackle your money issues and feel less overwhelmed by it all.
-
Three Pros (and Four Cons) of Hiring Multiple Financial Advisers: The View From a Financial AdviserThere's nothing to stop you from working with several financial advisers instead of just one. But take a balanced view of the risks and rewards first.
-
Here's Why Munis Aren't Just for Wealthy Investors NowBuyers of all levels should be intrigued by municipal bonds' steep yield curve, strong credit fundamentals and yield levels offering an income buffer.
