Exchange-traded funds came in third place among the top 10 investment products that grew in popularity among American households from 2020 to 2022, according to a new study. survey,
While individual stocks were the most commonly owned investment product, held by 43% of households in 2022, 18% of households invested in ETFs in the same year, up 2 percentage points from 2020., Research firm Hearts & Wallets found.
Additionally, consumers are more aware of which investment products they own than they were a decade ago. To that point, 77% of the 123 million households in the U.S. with at least $100 in assets know how their portfolios are allocated across product types, up from 55% in 2013, the survey found.
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“It excites me that more families are able to answer this question, it shows they are more engaged in their savings and investing,” said Laura Varas, founder and CEO of Hearts & Wallets.
According to experts, as families are becoming more involved in their investment strategies, here are some ways you can diversify your portfolio, grow your savings and avail tax benefits.
Individually managed accounts grew the most
Meanwhile, separately managed accounts and high-yield savings accounts overtook ETFs for No. 1 and No. 2, respectively, in a Hearts & Wallets survey of the biggest-growth investment products from 2020 to 2022.
SMAs, which are a portfolio of securities that a professional manages on your behalf, took the lead because “they solve three main problems for investors,” Varas said: They help investors “in a particularly good way.” “Helping to diversify your portfolio, they can be tax-optimized and are under the supervision of a professional, whether it is a financial institution or a manager.
“SMAs can be effective for investors” who do not want to choose their own stock investments and still want to receive broad exposure, the certified financial planner said. Douglas A. Founder and Chairman of Bon Fide Wealth in Bonport, New York.
You can find almost any type of ETF you can imagine.
Douglas Boneparth
President of Bon Fide Wealth
While it will be important for investors to know how much they are paying a professional manager and what the cost of the underlying investment is, “(I’m) not surprised to see an increase in the allocation or demand for this,” Boneparth said. . ,
Meanwhile, high-yield savings accounts tell the story around inflation and the Federal Reserve rising rates, which “have been the main headlines over the last year or so,” he said.
Since this type of savings account benefits from a higher rate of return, investors can get more for their cash. These FDIC-insured accounts are also liquid, which can benefit investors who want to start an emergency fund.
“If you’re not getting 5% (interest) on your savings, you’re leaving money on the table,” FA Council member Boneparth told CNBC.
Why ETFs are becoming ‘extremely popular’
While ETFs don’t benefit from higher rates, “they are becoming extremely popular investments for investors,” said certified financial planner Blair Duquesne, investment advisor at Ritholtz Wealth Management.
They offer a level of diversification that investors can’t get from owning individual stocks, such as “being able to access the entire S&P 500, each of its stocks, for the price of one share of an ETF,” and They are more tax efficient than this. Mutual funds, Duquesne also said CNBC FA Council.
ETFs also trade during market hours, at the end of the day like mutual funds, and can be held on brokerage platforms.
“There is almost any type of ETF you can imagine,” Boneparth said.
The original ETFs tracked major market indices, Duquesne said, but once this mechanism became popular, you could create an ETF with any investment thesis in mind.
“The most recent phenomenon is what we call thematic (ETFs),” he said. “If these themes come up in the news, investors are probably searching for that theme, and they easily find their way to the ETFs.” “, which can raise a lot of money.”
Finding your best investment product
Varas at Hearts & Wallets said investors should choose potential investment products based on the problems they want to solve.
High-yield savings accounts protect your principal with minimal risk. For the first time in a long time, cash has been considered in investment portfolios as investors can earn 5% on cash savings, Duquesne said.
These are ideal if you want to benefit from higher interest and are looking for liquidity, Boneparth said.
On the other hand, if you’re looking for a way to invest your money and don’t have to choose your investments, a separately managed account outsources the decision-making process to a manager based on whatever objective they have. Said further.
However, in the end, if investors want to take a relatively small amount of money and have access to a very large basket of securities in a very tax efficient way, an ETF might be a good idea to consider, Duquesne said.
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