Institutional Investment Habits that ETF Investors Can Adopt | ETF Trends

Institutional investors have implemented broad strategies to help grow wealth over time. Retail exchange traded fund investor can also take a page from the big league’s book and invest in a methodical manner.

Individual investors can benefit from institutional investment strategies, such as following a broad asset allocation strategy based on an investment objective or risk tolerance, including passive fund strategies, diversifying a portfolio and rebalancing a portfolio to follow through with one’s objective, writes Sheyna Steiner for Bankrate.

For starters, in a broad asset allocation strategy, investors can utilize noncorrelated asset classes that do not move in lock-step to diminish risk. For instance, investors can spread their investments across all domestic market capitalizations to diminish volatility, instead of relying solely on large-cap stocks. Moreover, after the multi-year rally in U.S. equities, investors may consider looking into international markets for potentially cheaper opportunities.

“The big endowments have been the best investors over the past quarter century,” Mebane T. Faber said in the article. “That means very broad diversification not just focusing on domestic assets but foreign assets, and of course paying as little for investment management as possible.”

Speaking of paying as little as possible for an investment, pensions have also utilized passive investing strategies to cut down on long-term costs. For instance, CalPERS have allocated a significant portion of its portfolio in passive investments, such as index funds or ETFs.

“Today, only maybe 15 percent of individuals adopt passive investing versus about 40 percent of institutional money,” Larry Swedroe, lead director at Buckingham Family of Financial Services, said in the article.

Investors would pay less for passive ETFs as the funds passively track a benchmark index, instead of forking over more to pay for management fees in an active fund strategy.