4 investment trends to watch in 2022

As we come to the end of this year and await a new one, it may not be as fresh a start as is generally thought. 2021 has shown us that some financial services and fintech trends that have emerged in response to COVID-19 are here to stay. Beyond the impacts of COVID-19, areas such as ESG-focused investing and cryptocurrency have also proven their endurance this year.

Below, we take a look at some of these changes and what they mean for investors.

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Rise of the retail investor

What was once a small part of financial market activity has become a driving force. Since the pandemic, retail has been the second largest source of trading volume, with retail investors trading more stocks than mutual funds, quantitative hedge funds and banks. Only the high frequency trading companies made more transactions. As volumes hit all-time highs earlier this year, retail investors have shown they can have a significant impact on the market.

Some of the factors that have helped the trade boom, such as disposable income and excess time from being stuck at home, will ease. 2021 has shown us that retail activity is likely to remain high, as free trading and persuasive design helped usher in a new cohort of active traders. Their trading models favor individual stocks with broad diversification and show little regard for fundamental valuations. Additionally, a tendency to coordinate across online sites is amplifying their influence, contributing to market rallies (and volatility) in unprecedented ways.

This leads to another industry effect: regulatory changes designed to protect the interests of everyday investors. More than ever, the focus is on how financial companies interact with their customers online.

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ESG investment

A beautiful sunset on a beach.

ESG investing is not a new trend, which dates back to the 1970s. But the focus on dollars invested in ESG investments has increased dramatically in recent years, accelerating in 2021. The US investment landscape. Sustainable funds recorded $ 15.7 billion in net inflows in the third quarter of 2021, following a record high of $ 21.5 billion in the first quarter of 2021.

National attention to climate change, pay inequity, mass incarceration and gun violence has elevated these issues in the minds of many investors. At the same time, younger generations with stronger ESG preferences accumulate wealth while older generations spend it in retirement. Investors are looking beyond the balance sheet and demanding companies are considering their wider social impact. According to some estimates, ESG could be integrated into half of all managed accounts in the United States by 2025. Increased access to ESG investment options means that investors will have more means to reflect their values ​​in their accounts. wallets.

In the future, we should expect better alignment with ESG definitions and measures. Last month, market regulators set out a global framework to refine ESG investment ratings and help fight greenwashing, or overestimate the environmental credentials of an investment or business. As more investors align their investments with their values ​​and more regulations are enacted, we are sure to see long term changes in investor behavior and corporate responsibility.

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The crypto boom

A bicycle pump inflates a bitcoin balloon.

Crypto assets continue to mature with an expanded investor base. In particular, 2021 saw institutional investors become more involved. A study by Fidelity Digital Assets found that 7 in 10 institutional investors plan to buy or invest in digital assets in the future. In November, the total cryptocurrency market cap was $ 2.79 trillion. While less than 2% of the global equity and bond market, crypto has already eclipsed the TIPS market in size and is about a third the size of the U.S. tech sector. Despite their volatility, crypto assets continue to gain adoption as an asset class, finding their way into the portfolios of more investors.

Additionally, ambitious technologists are developing a financial infrastructure on the blockchain, seeking to reshape the financial system into a more decentralized and accessible place. In 2021, VC invested $ 17 billion in crypto projects. While these DeFi projects are still in their infancy, they have the potential to structurally change the way we do business in our financial lives.

With substantial activity comes substantial regulatory oversight. President Biden’s recently signed infrastructure bill requires all crypto exchanges to notify the IRS of their transactions. The past year has shown that while there is still a lot of uncertainty, we hope that regulators will continue to work with crypto assets rather than trying to regulate them out of existence.

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Investor personalization

A close-up of a woman's face, highlighting one eye.

In an effective expression of the above themes, a growing number of investors have adopted direct indexing strategies, which involve buying the underlying securities of an index like the S&P 500 and selling the falling stocks. This could allow investors to capture capital gains if the index rises while creating losses that help offset them at tax time, helping investors keep more of their profits. Investors should consult their tax advisor if considering this type of investment strategy.

In addition, this strategy highlights the importance of enabling personalization in investing. Many large asset managers have identified direct indexing as transformative and have invested in technology that informs the process. This represents a major step towards an industry-wide focus on better outcomes for investors and, ideally, lower costs for people at all levels.

With 2021 financial industry headlines not quite in the rearview mirror, investors should remain aware of the impact some of the trending topics have on strategies designed to grow their portfolios in the year to year. to come. If next year looks like this, we expect more changes, regulations, technologies and opportunities.

Head of Investments, Altruistic

Adam Grealish is Head of Investments at Altruist, a financial technology company whose mission is to make quality independent financial advice more affordable and accessible. With a career steeped in financial innovation, Adam most recently led Betterment’s strategic asset allocation, fund selection, automated portfolio management and tax strategies. In addition, he held the position of Vice President at Goldman Sachs, overseeing structured corporate credit strategies and macro credit trading.

Adam Grealish is Head of Investments at Altruist, a financial technology company whose mission is to make quality independent financial advice more affordable and accessible. With a career steeped in financial innovation, Adam most recently led Betterment’s strategic asset allocation, fund selection, automated portfolio management and tax strategies. In addition, he held the position of Vice President at Goldman Sachs, overseeing structured corporate credit strategies and macro credit trading.


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