The world is in the midst of a major transition, one in which investors are increasingly turning to diversified portfolios, with more than half now investing their money in stocks, bonds and ETFs, according to a new report from Investing World.
As of December, the market cap of ETFs stood at $US7.8 trillion, according the report, which also said the average portfolio size is $US100,000.
The average portfolio investment is about $US5.5 million.
This is the second straight year that a new research report from the Australian Financial Services Commission (AFSC) has broken down the investment options available to investors, showing the diversity of portfolios available and the quality of their investments.
The study, called AFSI’s State of Equity 2015, shows there is a significant shift in the portfolio landscape, with the vast majority of investors now looking to diversify their portfolios into stocks, bond and ETF funds.
The report, based on data from data firm KPMG, found investors are moving into more individualized portfolios, focusing on specific sectors or asset classes, such as healthcare, technology and manufacturing.
“With the recent consolidation in the Australian financial system, many investors are now looking for a diversified portfolio, including ETFs,” the AFSC said in a statement.
“The focus of these investments will be to take advantage of the breadth of investment options and diversification options available, in a way that provides them with a better chance of diversifying their investments in the right asset class.”
The AFSC is a federal agency that advises financial institutions on the investment and investment management industry.
It is a part of the Australian Government, the Australian Securities and Investments Commission (ASIC), and the Australian Investment Management Association (AIMA).AFFSC director Chris Keating said the survey showed there was an increasing trend in investors seeking diversification, including diversification into individual funds.
“While the majority of Australians continue to invest in individual funds, they are also increasingly looking to buy in to the broader range of investment funds that are available across the portfolio,” Mr Keating told AAP.
“For those looking to invest, it is important to ensure that the diversification option is one that is available to them and the right one for their particular circumstances.”
The most common investment fund option was a fund which holds investments in individual stocks and bonds, with funds holding mutual funds or ETFs.
“Individual fund diversification is becoming more popular, particularly in the technology and health sector,” Mr Keegan said.
“A fund that holds investments with a mix of stocks and bond funds is ideal for those looking for high-yield, diversified funds.”
He said the report showed that there were many investment options to choose from, including funds which were diversified into individual stocks, with bonds being one of the most popular options.
“Most Australian investors now invest in a mix, which is not a new phenomenon,” Mr Keegan said, adding that most Australians would probably not have picked an individual fund if they had not seen the results of the study.
“There is an increasing recognition of the need for more diversification of investment portfolios, and this report is an important reminder of what investors can do to achieve this.”
Investors need to take the right approach to diversificationIn addition to diversifying investments, the AFSC also outlined a number of ways that financial professionals can help clients to achieve a more diversified investment portfolio.
“To reduce their risk and protect their wealth, we recommend that financial advisers regularly assess a client’s risk profile, their assets and their financial situation, to understand what type of portfolio would be best for their individual needs,” Mr Kipling said.
Mr Kipling also advised that the more diversify a portfolio, the better the return.
“We believe it is vital to consider the impact of each type of asset mix on your overall portfolio and the impact on your individual risk profile,” he said.
He also recommended that portfolio managers be familiar with different types of investment products and be able to give advice on which is best for your individual needs.
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