Exchange-traded funds came in third among the top 10 investment products to grow in popularity with U.S. households from 2020 to 2022, according to a new 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 by 2 percentage points from 2020, research firm Hearts & Wallets found.
Additionally, consumers are more aware of what investment products they own compared with a decade ago. To that point, of the 123 million households in the U.S. with assets of at least $100, 77% are aware of how their portfolios are allocated across product types, up from 55% in 2013, the survey found.
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“It makes me excited that more households are able to even answer this question, that shows they’re way more engaged in their saving and investing,” said Laura Varas, founder and chief executive officer of Hearts and Wallets.
As households become more involved in their investing strategies, here are a few ways you can diversify your portfolio, increase your savings and reap tax benefits, according to experts.
Separately managed accounts grew the most
Meanwhile separately managed accounts and high-yield savings accounts beat out ETFs for spots No. 1 and No. 2, respectively, in the Hearts & Wallets survey of investment products that grew the most 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,” said Varas: They help investors diversify their portfolios in an “especially good way,” they can be tax-optimized and are under a professional’s oversight, whether that is a financial institution or a manager.
“SMAs can be effective” for investors who don’t want to pick their own stock investments and still gain a broad exposure, said certified financial planner Douglas A. Boneparth, founder and president of Bone Fide Wealth in New York.
There’s almost any kind of ETF you could imagine.
Douglas Boneparth
president of Bone Fide Wealth
While it will be important for investors to know how much they’re paying the professional manager and the costs of the underlying investments, “[I’m] not shocked to see that there’s an increase in allocation or demand for that,” added Boneparth.
Meanwhile, high-yield savings accounts speak to the story around inflation and the Federal Reserve increasing rates, which “have been the main headline the last year or so,” he said.
As this type of savings account benefits from high-rate conditions, 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,” added Boneparth, a member of CNBC’s FA Council.
Why ETFs are becoming ‘extremely popular’
While ETFs do not benefit from high rates, “they are becoming extremely popular investments for investors,” said certified financial planner Blair duQuesnay, investment advisor at Ritholtz Wealth Management.
They offer a level of diversification investors can’t get by owning individual stocks, like “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 mutual funds, said duQuesnay, also on the CNBC FA Council.
ETFs also trade during market hours, as opposed to the end of the day like mutual funds do and can be held in brokerage platforms.
“There’s almost any kind of ETF you could imagine,” said Boneparth.
The original ETFs tracked major market indexes, but once the mechanism became popular, you can create an ETF with any investment thesis in mind, said duQuesnay.
“The most recent phenomenon are what we call thematic [ETFs],” she said, “if these themes catch on in the news, that investors maybe are searching for that theme, and they find their way easily to an ETF, which can raise a lot of money.”
Finding your best investment product fit
Investors should weigh potential investment product picks depending on the problems they’re looking to solve, said Varas at Hearts & Wallets.
High-yield savings accounts protect your principal with minimal risk. For the first time in a long time, cash is up for consideration in an investment portfolio as investors can earn 5% on cash savings, added duQuesnay.
These are ideal if you want to benefit from high interest and are seeking liquidity, said Boneparth.
If, on the other hand, you’re looking for a way to invest your money and not have to choose your investments, a separately managed account outsources that decision-making process to a manager based on whatever the objective is, he added.
In the end, however, 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 good to consider, duQuesnay said.
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