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Visualizing the Top Investments Used by Financial Advisors

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Visualizing the Top Investments Used by Financial Advisors

The Top Investments Used by Financial Advisors

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Today, financial advisors are re-evaluating how they build client portfolios as the economic environment evolves.

Following a decade of historically low interest rates, the U.S. economy is now characterized by higher interest rates, driven by inflationary pressures. This has been met with stronger bond returns and a more cautious view on stocks as companies face steeper borrowing costs.

This graphic shows the top investments used by advisors, based on a 2023 Journal of Financial Planning survey.

Top Investments in 2023

Below, we show the most common types of investments advisors used or recommended to their clients this year:

Investment Type 2023 2019
Exchange-Traded Funds (ETFs) 90% 88%
Cash and Equivalents 76% 80%
Mutual Funds* 64% 70%
Individual Stocks 51% 54%
Individual Bonds 47% 42%
ESG Funds 35% 26%
Separately Managed Accounts 33% 26%
Fixed Annuities 31% 23%
Variable Annuities 30% 26%
Mutual Fund Wrap Programs 27% 32%
Fixed Permanent Life Insurance Products 26% 24%
Private Equity Funds 23% 12%
Variable Permanent
Life Insurance
23% 14%
Indexed Annuities 22% 15%
Structured Products 21% 11%
Other Alternative Investments 17% 13%
Individually Traded REITs 17% 20%
Non-Traded REITs 17% 13%
Options 12% 9%
Hedge Funds 11% 8%
Precious Metals 8% 5%
Other 4% 4%
Cryptocurrencies 3% 0%

*Non-wrap. Numbers have been rounded.

As the above table shows, 90% of advisors use ETFs, and almost half reported they plan to increase their usage in the 12 months ahead.

Cash and equivalents, such as money market funds, were also widely used. Yet since 2019, use by advisors declined by four percentage points.

Money market funds saw a record $5.9 trillion in assets under management as of December, averaging returns of about 4.5%. Meanwhile, the S&P 500 has returned roughly 24% year-to-date and investment bonds have returned over 5%.

The use of private equity funds, which invest in privately-held companies, saw the highest increase across investment types, rising 11 percentage points as some advisors looked to alternative investments.

On the other hand, the sharpest decline was across mutual funds, falling six percentage points. Over a quarter of respondents say that they plan to decrease utilizing them in the next year.

Interestingly, 3% of advisors use cryptocurrencies with their clients. To date, Bitcoin has returned over 164%.

Advisor Views on the 60/40 Portfolio

Is the 60/40 portfolio dead?

After a rocky year in 2022, the time-honored 60% stock and 40% bond portfolio has returned 13% to date as of December. When surveyed, more advisors were confident than doubtful that it could offer similar returns compared to history.

Confidence That a 60/40 Portfolio Can Provide
Similar Returns as it Has Historically
Percent of Respondents
Very Confident 16%
Confident 28%
Somewhat Confident 27%
Neutral 7%
Somewhat Doubtful 14%
Doubtful 4%
Very Doubtful 3%

Percentages may not equal 100 due to rounding.

In fact, JP Morgan projects that a 60/40 portfolio will outperform cash by 4.1 percentage points on an annualized basis, and outpace inflation by 4.5 percentage points over the next decade.

According to their estimates, $100 in cash is forecast to grow to $133 over 10 years, while a 60/40 portfolio is projected to be worth $197.

Although the high interest rate climate has increased returns on cash, it misses out on the value of compounding offered by other types of investments over a longer horizon.

The post Visualizing the Top Investments Used by Financial Advisors appeared first on Visual Capitalist.

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