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.
Sign up for Kiplinger’s Free E-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.
-
Six Steps to Take if You've Recently Inherited Money From a Loved OneIt’s important to deal with the emotional aspect first before tackling the financial one.
-
Alaska Airlines to Buy Hawaiian: Get Bonus Miles Now
How to use the Alaska Airlines credit card and frequent flyer program to save on trips to Hawaii, Alaska and beyond.
-
11 Reasons to Consider a 1031 Exchange
Deferring capital gains taxes might be at the top of the list, but growing your portfolio and your wealth and helping with estate planning are also compelling reasons.
-
Why It’s Time to Give Bonds Another Look
Yields are much more attractive now, but you should use discretion to find the bond allocation that’s best for you.
-
Estate Planning and the Legal Quirks of Retiree Cohabitation
Creating an estate plan for an unmarried couple is already challenging, but when the cohabitating couple are in their golden years, it’s especially tricky.
-
Seven Financial Planning Stops to Put on Your Map to Financial Security
Creating a comprehensive plan is just the start, though. Checking in regularly to make sure you’re still on track is imperative.
-
How to Measure the Health of Your Retirement Plan
These five key indicators can help you make decisions based on the overall performance of your retirement plan rather than individual variables.
-
Four Easy Ways to Get Yourself Fired
Being a standout on the job can sometimes be as simple as showing up to meetings on time, responding promptly to requests, doing your homework and not being a jerk.
-
How Might the Great Wealth Transfer Change Society?
As $84 trillion in assets move from Baby Boomers to younger generations, we could see a greater emphasis on financial technology and investing based on values.
-
Why More Retirees Might Come Out of Retirement
It’s often not solely because of financial reasons, but because of a lack of purpose in retirement. This financial expert can relate.
