The Top Investments Used by Financial Advisors

The Top Investments Used by Financial Advisors

Financial advisors adapt their investment strategies in response to changing economic conditions

Financial advisors are adjusting their approach to building client portfolios as the economic landscape evolves. With the U.S. economy experiencing higher interest rates driven by inflationary pressures, advisors are reassessing their investment recommendations. This article explores the top investments used by financial advisors based on a recent survey, shedding light on the evolving preferences in the industry.

Top Investments in 2023:

According to a 2023 survey conducted by the Journal of Financial Planning, financial advisors have been utilizing various investment types to meet their clients’ needs. The following are the most commonly used investments in 2023, compared to the figures from 2019:

– Exchange-Traded Funds (ETFs): 90% (2019: 88%)
– Cash and Equivalents: 76% (2019: 80%)
– Mutual Funds: 64% (2019: 70%)
– Individual Stocks: 51% (2019: 54%)
– Individual Bonds: 47% (2019: 42%)
– ESG Funds: 35% (2019: 26%)
– Separately Managed Accounts: 33% (2019: 26%)
– Fixed Annuities: 31% (2019: 23%)
– Variable Annuities: 30% (2019: 26%)
– Mutual Fund Wrap Programs: 27% (2019: 32%)
– Fixed Permanent Life Insurance Products: 26% (2019: 24%)
– Private Equity Funds: 23% (2019: 12%)
– Variable Permanent Life Insurance: 23% (2019: 14%)
– Indexed Annuities: 22% (2019: 15%)
– Structured Products: 21% (2019: 11%)
– Other Alternative Investments: 17% (2019: 13%)
– Individually Traded REITs: 17% (2019: 20%)
– Non-Traded REITs: 17% (2019: 13%)
– Options: 12% (2019: 9%)
– Hedge Funds: 11% (2019: 8%)
– Precious Metals: 8% (2019: 5%)
– Other: 4% (2019: 4%)
– Cryptocurrencies: 3% (2019: 0%)

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The data reveals that ETFs are the most popular investment choice, with 90% of advisors utilizing them. Additionally, the usage of private equity funds has seen a significant increase, rising by 11 percentage points. Conversely, mutual funds have experienced a decline in usage, with 26% of respondents planning to decrease their utilization in the coming year.

The 60/40 Portfolio:

The article also examines the sentiment surrounding the traditional 60/40 portfolio, which consists of a 60% allocation to stocks and a 40% allocation to bonds. Despite a challenging year in 2022, the 60/40 portfolio has delivered a 13% return as of December. When surveyed, a majority of advisors expressed confidence in the portfolio’s ability to provide similar returns compared to historical performance.

According to JP Morgan, a 60/40 portfolio is projected to outperform cash by 4.1 percentage points on an annualized basis and outpace inflation by 4.5 percentage points over the next decade. This projection suggests that a $100 investment in cash is expected to grow to $133 over 10 years, while a 60/40 portfolio is projected to reach $197.

Conclusion:

As the economic environment evolves, financial advisors are adjusting their investment strategies to navigate changing market conditions. The survey results highlight the popularity of ETFs and the increasing interest in private equity funds among advisors. Despite challenges, the 60/40 portfolio remains a favored choice among advisors, with many confident in its ability to generate consistent returns. It is clear that financial advisors are continuously adapting their investment recommendations to best serve their clients’ needs in a dynamic market landscape.