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.
-
Stocks at New Highs as Shutdown Drags On: Stock Market TodayThe Nasdaq Composite, S&P 500 and Dow Jones Industrial Average all notched new record closes Thursday as tech stocks gained.
-
Government Shutdown Puts IPO Resurgence at RiskThe IPO market has been sizzling in recent months, but the government shutdown threatens to put a short-term halt to public offerings. Here's why.
-
Q3 2025 Post-Mortem From an Investment Adviser: Markets Continue to Climb, Gold ShinesThe third quarter saw market gains driven by Fed rate cuts and strong earnings, despite high valuations and concerns about speculative trading and job growth. Gold and international stocks could be potential hedges.
-
Moving Abroad? You Might Need a Cross-Border Financial AdviserIf you want to live in another country long term, you could benefit from an expert's guidance. Here's how to find a good qualified adviser to help with residency requirements, documentation, financial laws and tax impacts.
-
Eight Ways to Stay Safe When Making Cashless PaymentsConsumers are ditching cash for the convenience of digital payments, but fraudsters are right behind you. Just a few simple steps can help you stay safe.
-
I'm a Financial Planner and a Parent: Here Are Five Money Habits Every Young Family Should HaveWhen children are young, it can be hard to meet immediate costs, let alone save for the future, but these five habits can help build lasting financial security.
-
Dealing With a Bad HOA Board? This Book Could Be Your Battle Plan'Bad HOA' by Luke Carlson empowers homeowners to push back against unfairness, offering advice on dealing with challenging homeowners associations (HOAs).
-
Advisers Face a Fiduciary Challenge When Discussing Alternatives to Trump AccountsWhile Trump Accounts offer some benefits for early savings, investment advisers need to be cautious when recommending alternatives like 529 plans or Roth IRAs, as those suggestions could create fiduciary conflicts.
-
Financial Advisers: Here's How to Help Soon-to-Be Married Clients Get Their Financial House in OrderGetting married changes a couple's life in more ways than one, so it's a good idea to discuss financial and legal issues like pre-/postnuptial agreements, estate plans and life insurance.
-
It's Not Too Late for Wealth Advisers to Participate in the Silver TsunamiWith so many business-owning Baby Boomers set to retire, wealth advisers need a plan to ensure their business-owning clients and prospects become and remain their best clients.
