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Personalized Portfolios: Revolutionizing the World of Investing

In the ever-evolving landscape of investing, personalization is emerging as a game-changer. Recent advancements in technology hold the promise to empower asset managers across the board with portfolios that align with the values and financial objectives of each of their clients. This shift towards personalized investing is reshaping the financial industry. 


personalized investing Sept 2023

Author William Gibson once famously remarked that the future is already here—it's just not evenly distributed. This sentiment held true for personalization in investing for some time, with exclusive access reserved for wealthiest clients of the largest asset management firms in the world. However, recent advancements in technology have begun to level the playing field, making personalized investing available to a broader range of players and investors.

In today's financial landscape, concerns about economic recession and inflation loom large.At the same time, across various aspects of life, people increasingly seek personalized experiences, and this trend extends to their investments. Thus,investors of all backgrounds seek investment strategies that weather market volatility while resonating with their unique financial values. Are personalized portfolios that adapt to market situations in real-time in reach for almost anyone?

Already back in 2021, a McKinsey study highlighted the growing demand for personalization, particularly in the wake of the COVID-19 pandemic and the surge in digital interactions. Investors now expect their portfolios to reflect their individual values and objectives, and the financial industry is taking note. Registered investment advisers (RIAs) are at the forefront of recognizing the importance of personalized investment solutions. According to Schwab's 2022 Independent Advisor Outlook study, over half of surveyed RIAs anticipate an increasing demand for personalized investment portfolios among their clients. Millennials, in particular, are expected to drive this trend.

Traditionally, the production of personalized portfolios at scale has been extremely challenging and was mostly reserved for ultra high-net-worth investors due to high account minimums and outdated technology. However, recent advancements in AI and related technologies have the potential to democratize these offerings, extending the opportunity to investors at all wealth levels. This shift enables individuals to align their portfolios with their values and financial objectives more easily than ever before.


A Diverse Range of Personalization Choices

Thematic and active investments have witnessed a surge in popularity. According to a new report from Morningstar, active ETFs grew at an organic rate of 14 percent during the first half of 2023, compared to a 3 percent growth rate for passive ETFs. The increase in demand for more personalized investment approaches has led to a significant expansion in the variety of investment options available to investors. In addition to traditional choices like sector and industry funds, investors can now explore unique selections such as funds centered around K-Pop or companies catering to Generation Z preferences. While active strategies and ETFs are indicators that investment solutions are becoming more personalized, those investment vehicles are not equal personalized investing. The latter  involves building an investment portfolio that is tailored to an individual investor's specific needs, goals, and risk tolerance. It takes into account factors like age, income, time horizon, and values to create a bespoke portfolio. Active investing refers to an investment strategy where the investor or money manager aims to beat the market by frequently buying and selling investments. Active investors attempt to time the market and find mispriced assets. Personalized investing is more focused on the individual investor, while active investing is more about trying to outperform the broader market through trading strategies. The key difference is that personalized investing is about customizing an appropriate portfolio for an investor's situation, not necessarily attempting to beat the market.

While personalizing one's investment strategy is not without risks, it has the potential to lead to more favorable outcomes. One of the primary impediments to investor returns is suboptimal investment behavior, such as reacting impulsively to market fluctuations or delaying investment decisions. These behavioral challenges, combined with other factors, can erode returns by 1.7% or more. However, crafting a bespoke portfolio that aligns with an investor's unique circumstances and beliefs can serve as a crucial anchor. This tailored approach helps investors adhere to their investment strategy even when faced with market uncertainty. In today's landscape, affluent customers often find themselves underserved in the realm of personalized investment advice and portfolios. A recent study conducted by Deloitte Switzerland revealed that over 40% of affluent customers are currently not receiving the personalized solutions they seek from their wealth managers. This places investment personalization at the forefront of factors contributing to customer loyalty.

In this rapidly evolving landscape of personalized investing, the future is becoming more accessible to investors of all backgrounds. The once-exclusive realm of tailored portfolios is no longer confined to the largest asset management firms. Advancements in technology, particularly in the field of AI, are democratizing personalized investing, ushering in a new era where portfolios can reflect individual values and financial objectives. This transformation is not only reshaping the financial industry but also aligning it with the growing demand for personalized experiences in various aspects of life. As we look ahead, platforms like aisot's proprietary AI Insights Platform are at the forefront, allowing asset managers to generate portfolios that not only mirror customer preferences at any given time but also optimize investment decisions through AI. With this technological revolution, investors can navigate market volatility with confidence, secure in the knowledge that their investments align seamlessly with their unique aspirations and beliefs. The future of investing is here, and it's personalized.