Investors with varying degrees of risk tolerance prioritize different benefits to investing in ETFs.
Investors with a conservative risk tolerance are the least likely to invest in exchange traded funds (ETFs) in the coming year, according to a recent survey conducted by Spectrem’s Millionaire Corner. Investors who profess moderate and aggressive risk tolerances are more than twice as likely to invest in this increasingly popular alternative investment.
Not surprisingly, when asked about their investment preferences in the next 12 months, conservative and moderate investors said they are more likely to opt for mutual funds (86 percent combined) than more aggressive investors (54 percent). Conversely, the aggressive investors (60 percent) were more likely than moderate (46 percent) and conservative investors (18 percent) to say they would be investing in stocks.
Investors with a conservative risk tolerance were more than twice as likely to say they would not be investing in any of the above.
ETFs are an index fund that can be traded like a stock. Some are riskier than others, observes Exchange Traded Funds for Dummies: “Most ETFs track stock indexes, and some of those stock indexes can be extremely volatile, such as individual sectors of the U.S. economy (technology, energy, defense and aerospace, and so on) or the stock markets of emerging-market nations…But other ETFs track bond indexes. Those tend to be considerably less volatile (and less potentially rewarding) than stock ETFs.”
Investors with varying degrees of risk tolerance prioritize different benefits to investing in ETFs. Those with a conservative risk tolerance value most the diversification ETFs bring to a portfolio, followed by the liquidity of the investment and its lower cost. Aggressive investors, too cite ETFs’ diversification as the primary reason for investing in ETFs, but they are swayed more by ETFs’ lost cost than their moderate and conservative cohorts.
Across risk tolerance levels, it seems that financial advisors are not talking to their clients about ETFs. Less than 20 percent of all investors surveyed said that their advisor is recommending ETFs as an investment.
A higher percentage have been compelled to invest in ETFs due to their recently-minted status as a mainstream investment product.
Donald Liebenson writes news and features for Millionaire Corner. He has been published in the Chicago Tribune, The Chicago Sun-Times, The Los Angeles Times, Fiscal Times, Entertainment Weekly, Huffington Post, and other outlets. He has also served as a marketing writer for Chicago-based Questar Entertainment and distributor Baker & Taylor.
A graduate of the University of Southern California, he is married with a college-age son. He also writes extensively about entertainment.