Customised Investing Strategies Thrive as Tailor-Made Portfolios Gain Popularity

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The emergence of exchange-traded funds (ETFs) in the 1990s was revolutionary for the investment world. They promised to give investors access to a broader range of assets and markets while providing transparency into pricing and costs.

Since their emergence, ETFs have become increasingly popular among investors to gain access to a broad range of assets and markets.

According to reports, ETFs held an estimated $US10 trillion ($14.7 trillion) globally at the end of last year, with Australia contributing around $A130 billion to that total.

This growth has been driven by the increasing availability of low-cost ETFs and the effortless diversification they provide for portfolios.

Morning Star states, “Net inflows into active ETFs were US$102 billion in 2022, and the industry executives believe there’s more to come. The bullish sentiment is especially apparent in the US, where active ETFs are already well established, at around 5% of overall ETF AuM.”

Despite their success, ETFs have their drawbacks. As the ETF market has grown and become more popular, so too have costs associated with investing in them.

While ETFs have traditionally been seen as a cost-effective way to gain market exposure, fees for ETFs have risen over time. This has made them less attractive to some investors.

At the same time, a new investing strategy called direct indexing is gaining traction. Direct indexing combines the flexibility of traditional DIY stock picking with the diversification of ETFs.

It allows investors to customise portfolios by selecting individual stocks with the same broad objectives as an ETF but at a lower cost since there are no management fees or other associated charges.

The approach also allows investors to capture investment opportunities that may not be available through an ETF, such as tax optimisation strategies or sector exposures not available in ETFs.

With financial advisors now offering advice on composing tailored portfolios that meet individual needs, the trend is shifting away from traditional ETFs to more personalised investing approaches.

The potential for more incredible customizability combined with lower costs and fees make tailor-made portfolio investing an attractive option for many investors looking for more control over their investments while reaping the benefits of diversification across multiple asset classes.

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