Exchange traded fund investors should take note of affluent investor habits and common investment characteristics that help wealthy investors keep building their nest eggs.
According to a recent SigFig study of 330,000 investors with total assets of about $147 billion, the wealthiest 25% were investing very differently than the quartile with the least wealth, reports Kelley Holland for CNBC.
Specifically, the wealthiest investors were more likely to follow recommendations of their financial advisors, focus on low fees, abstain from panic selling and trade less often. These investment practices seem to be paying off as the wealthiest investors also saw significantly better investment returns.
“Turnover has been shown time and again to impact returns, because you try to time the market and you can’t do that. Trying to sell when there’s a downturn — that’s a sign of emotional investing rather than having a plan,”said Tomas Pueyo, SigFig’s vice president of product and growth, told CNBC, adding that the wealthy investors steered away from those practices.
While SigFig is not saying there is a direct cause and effect, the portfolio manager did explain there was a high correlation that has helped wealthy investors continue to accumulate wealth.
Additionally, wealthy investors may also have access to more investment options. Wealthier investors may invest in institutional fund share classes with significantly cheaper fees but typically come with hefty minimum investments requirements. For instance, at Vanguard, Admiral Shares fund class has fees that are 16% lower on average than Investor Class shares, and Admiral Shares also require $10,000 minimums in most index funds and as much as $100,000 on other targeted sectors.
Retail investors, though, can utilize ultra cheap ETFs to build out an investment portfolio. Furthermore, ETFs require no minimum investments, so someone who wants to start somewhere can invest as little as the market price for one ETF share.