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Exchange-traded funds come third among the 10 most popular investment products among U.S. households between 2020 and 2022, according to a new survey.
While individual stocks were the most widely held investment product, held by 43% of households in 2022, 18% of households invested in ETFs in the same year, an increase of 2 percentage points from 2020., research company Hearts & Wallets found.
Additionally, consumers are more aware of the investment products they own than they were a decade ago. At this point, of the 123 million U.S. households with assets of at least $100, 77% know how their portfolios are allocated across product types, up from 55% in 2013, according to the survey.
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“It makes me excited that more households are able to answer this question, which shows that they are much more engaged with their saving and investing,” said Laura Varas, founder and CEO of Hearts and Wallets.
As households become more involved in their investment strategies, here are some ways to diversify your portfolio, increase your savings and benefit from tax benefits, according to experts.
Separately managed accounts grew the most
Meanwhile, separately managed accounts and high-yield savings accounts beat ETFs to the No. 1 and No. 2 spots, respectively, in the Hearts & Wallets survey of investment products that saw the strongest growth from 2020 to 2022.
SMAs, which are a portfolio of securities that a professional manages on your behalf, have taken the lead because “they solve three main problems for investors,” Varas said: They help investors diversify their portfolios in a ” particularly effective way”, they can be fiscally optimized and are under the supervision of a professional, whether a financial institution or a manager.
“SMAs can be effective” for investors who don’t want to choose their own stock investments while still getting broad exposure, said certified financial planner Douglas A. Boneparth, founder and president of Bone Fide Wealth in New York .
There are almost every type of ETF you can imagine.
Douglas Boneparth
president of Bone Fide Wealth
While it will be important for investors to know how much they are paying to the professional manager as well as the costs of the underlying investments, “(I’m) not shocked to see that there is an increase in allocation or the demand for it,” Boneparth added. .
Meanwhile, high-yield savings accounts reflect the Federal Reserve’s history of inflation and rising rates, which “have dominated headlines over the past year,” he said. he declared.
This type of savings account benefits from high rate conditions, investors can get more for their money. These FDIC-insured accounts are also liquid, which can benefit investors who want to build an emergency fund.
“If you’re not getting 5% (interest) on your savings, you’re leaving money on the table,” added Boneparth, a member of CNBC’s FA Council.
Why ETFs are becoming ‘extremely popular’
Even though ETFs don’t enjoy high rates, “they’re becoming extremely popular investments with investors,” said Blair duQuesnay, a certified financial planner and investment advisor at Ritholtz Wealth Management.
They provide a level of diversification that investors can’t get by owning individual stocks, such as being able to access the entire S&P500, every stock in it, for the price of one share of an ETF ”, and they are more tax efficient than investors. mutual funds, said duQuesnay, also a member of the CNBC FA Council.
ETFs also trade during market hours, as opposed to at the end of the day like mutual funds do, and can be held on brokerage platforms.
“There are almost every type of ETF you can imagine,” Boneparth said.
The original ETFs tracked major market indexes, but once the mechanism became popular, you could create an ETF with any investment thesis in mind, duQuesnay said.
“The newest phenomenon is what we call thematic ETFs,” she said. “If these themes are in the news, investors may be looking for that theme and easily find their way to an ETF, which can raise a lot of money.”
Find the investment product that suits you best
Investors should weigh potential investment product choices based on the problems they seek to solve, Hearts & Wallets’ Varas said.
High-yield savings accounts protect your capital with minimal risk. For the first time in a long time, cash is factored into an investment portfolio, as investors can earn 5% on their cash savings, duQuesnay added.
These are ideal if you want high interest and are looking for liquidity, Boneparth said.
If, on the other hand, you’re looking for a way to invest your money without having to choose your investments, a separately managed account outsources that decision-making process to a manager based on the objective, he added .
Ultimately, though, if investors want to take a relatively small amount of money and access a very large basket of securities in a very tax-efficient way, ETFs would be a good idea, duQuesnay said.
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