In 2023, 90% of Financial Advisors Recommended ETF Investments; Half Plan to Increase Allocation in 2024

There has been a shift towards exchange-traded funds (ETFs) as a top investment option with rising interest rates and concerns about inflation. A recent analysis by Stocklytics.com has shown that ETFs have become the investment choice for many financial advisors, with a significant 90% recommending ETFs to their clients last year.

Additionally, nearly half of the advisors have expressed their intention to boost their investments in ETFs, indicating growing confidence in this type of investment. 

According to Edith Reads a Financial expert at Stocklytics:

Financial advisers are increasingly favoring ETFs because they offer diversification in investment portfolios and exposure to various asset classes and trends.

Stocklytics Financial Expert, Edith Reads

Why are Financial Advisors Turning to ETFs?

The appeal of ETFs lies in their cost effectiveness, providing value for clients compared to managed funds. Their low-cost nature makes them an attractive option for individuals starting their investment journey.

Moreover, the transparency of ETF holdings is particularly appealing to novice investors as it enables them to decide where they allocate their funds.

Advisors utilize ETFs to create diversified portfolios that match their clients’ risk tolerance and financial goals, offering them flexibility. This adaptability ensures that investment strategies closely align with the needs and preferences of clients.

Alternative Investment Assets

Since 2019, advisors have decreased their usage of traditional options like cash and money market funds while ETFs continue to lead. However, money market funds have witnessed a surge in assets under management, hitting a record $5.9 trillion by December 2023, fueled by their returns of around 4.5%, outperforming other conventional investment options.

In a notable development, a small but increasing number of advisors—about 3%—have started including cryptocurrencies in client portfolios. Despite their volatility, cryptos such as Bitcoin have shown significant returns, leading some advisors to consider them as investment choices.

Looking forward, advisors maintain optimism regarding the traditional 60/40 portfolio comprising 60% stocks and 40% bonds. While there are doubts about its relevance amid changing landscapes, most advisors believe in its ability to provide returns with historical performance.

According to JPMorgan Asset Management, the popular 60/40 portfolio isn’t dead and, in fact, will be a significantly more compelling investment than cash over the coming decade.

“The strategy of putting 60% of assets in equities and 40% in treasuries is set to outperform cash by an annualized 4.1 percentage points, and inflation by 4.5 percentage points, over the next 10 years,” strategists at the money manager said in a report looking ahead to the state of capital markets in 2024.