4 Hot Investing Trends to Watch for in 2022
A lot changed in 2021, but here are a few investing trends we saw grow during this tumultuous time that investors can probably count on sticking around well into the new year.
You are now subscribed
Your newsletter sign-up was successful
Want to add more newsletters?
Delivered daily
Kiplinger Today
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more delivered daily. Smart money moves start here.
Sent five days a week
Kiplinger A Step Ahead
Get practical help to make better financial decisions in your everyday life, from spending to savings on top deals.
Delivered daily
Kiplinger Closing Bell
Get today's biggest financial and investing headlines delivered to your inbox every day the U.S. stock market is open.
Sent twice a week
Kiplinger Adviser Intel
Financial pros across the country share best practices and fresh tactics to preserve and grow your wealth.
Delivered weekly
Kiplinger Tax Tips
Trim your federal and state tax bills with practical tax-planning and tax-cutting strategies.
Sent twice a week
Kiplinger Retirement Tips
Your twice-a-week guide to planning and enjoying a financially secure and richly rewarding retirement
Sent bimonthly.
Kiplinger Adviser Angle
Insights for advisers, wealth managers and other financial professionals.
Sent twice a week
Kiplinger Investing Weekly
Your twice-a-week roundup of promising stocks, funds, companies and industries you should consider, ones you should avoid, and why.
Sent weekly for six weeks
Kiplinger Invest for Retirement
Your step-by-step six-part series on how to invest for retirement, from devising a successful strategy to exactly which investments to choose.
As we come to the end of this year and look ahead to a new one, it may not represent as fresh of a start as one would typically think. 2021 showed us that some financial services and fintech trends that emerged as a response to COVID-19 are here to stay. Beyond COVID-19 impacts, areas like ESG-focused investing and cryptocurrency have also proven their staying power this year.
Below we look at some of these changes and what they mean for investors.
Rise of the retail investor
What was once a small piece of financial market activity has become a driving force. Since the pandemic, retail trading has been the second-largest source of trading volume, with retail investors trading more stocks than mutual funds, quantitative hedge funds and banks. Only high-frequency trading firms transacted more. While volumes have come off all-time highs earlier this year, retail investors have demonstrated that they can significantly impact the market.
Some factors that contributed to the surge in trading, like disposable income and excess time due to being stuck at home, will subside. 2021 has shown us that retail activity will likely stay elevated, as free trades and persuasive design have helped usher in a new cohort of active traders. Their trading patterns favor individual securities to broad diversification, and show little regard for fundamental valuations. Additionally, a tendency to coordinate in online venues amplifies their influence, contributing to market rallies (and volatility) in unprecedented ways.
This leads to another industry effect: regulation changes designed to protect the interests of everyday investors. There’s more focus than ever on how financial firms engage with their customers online.
Sponsored Content
ESG investing
ESG investing is not a new trend, dating back to as early as the 1970s. But the focus on dollars flowing into ESG investing increased dramatically over the last few years, accelerating in 2021. The U.S. sustainable fund landscape saw $15.7 billion in net inflows during Q3 2021, coming on the heels of the record $21.5 billion in Q1 2021.
National attention on 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 are accumulating wealth as older generations are spending it down in retirement. Investors are looking beyond the balance sheet and demanding corporations consider their broader social impact. By some estimates, ESG may become integrated into half of all U.S. managed accounts by 2025. More access to ESG investment options means that investors will have more ways to reflect their values in their portfolios.
Going forward, we should expect better alignment on ESG definitions and metrics. Just last month, market regulators set out a global framework to refine ESG investment ratings and help combat “greenwashing,” or overstating the environmental credentials of an investment or activity. As more investors align their investments with their values, and more regulations are enacted, we are sure to see long-term changes to investor behavior and corporate accountability.
Sponsored Content
Crypto boom
Crypto assets continue to mature with an expanded investor base. Most notably, 2021 saw institutional investors become more involved. A study by Fidelity Digital Assets found that 7 out of 10 institutional investors expect to buy or invest in digital assets in the future. As of November, the total cryptocurrency market capitalization was $2.79 trillion. While less than 2% of the global stock and bond market, crypto has already eclipsed the TIPS market in size and is approximately one-third the size of the U.S. tech sector. Despite their volatility, crypto assets continue to gain more widespread adoption as an asset class, finding their way into more investors' portfolios.
Additionally, ambitious technologists are developing financial infrastructure on the blockchain, seeking to reshape the financial system into a more decentralized and accessible place. In 2021, VC’s invested $17 billion in crypto projects. While these DeFi projects are still in their infancy, they have the potential to structurally change how we transact in our financial lives.
With substantial activity comes substantial regulatory oversight. The infrastructure bill recently signed by President Biden requires all crypto exchanges to notify the IRS of their transactions. The past year showed that while there’s still a lot of uncertainty, we’re hopeful regulators will continue to work with crypto assets rather than try to regulate them out of existence.
Sponsored Content
Investor personalization
In an efficient expression of the above themes, an increasing 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 stocks that decline. This could allow investors the potential to capture the capital gains if the index rises while creating losses that help offset them at tax time, helping investors keep more of their profit. Investors should consult their tax professional if considering this type of investment strategy.
What’s more, this strategy sheds light on the importance of allowing personalization in investing. Many large asset managers have identified direct indexing as transformative, and invested in technology that informs the process. This represents a major step toward an industrywide focus on better investor outcomes and, ideally, lower costs for people across the board.
With 2021’s financial industry headlines not quite in the rearview mirror, investors should remain aware of how some of the trending topics will impact strategies designed to grow their portfolios in the coming year. If next year is anything like this one, we’re in for more changes, regulation, tech and opportunity.
Sponsored Content
-
5 Vince Lombardi Quotes Retirees Should Live ByThe iconic football coach's philosophy can help retirees win at the game of life.
-
The $200,000 Olympic 'Pension' is a Retirement Game-Changer for Team USAThe donation by financier Ross Stevens is meant to be a "retirement program" for Team USA Olympic and Paralympic athletes.
-
10 Cheapest Places to Live in ColoradoProperty Tax Looking for a cozy cabin near the slopes? These Colorado counties combine reasonable house prices with the state's lowest property tax bills.
-
Don't Bury Your Kids in Taxes: How to Position Your Investments to Help Create More Wealth for ThemTo minimize your heirs' tax burden, focus on aligning your investment account types and assets with your estate plan, and pay attention to the impact of RMDs.
-
Are You 'Too Old' to Benefit From an Annuity?Probably not, even if you're in your 70s or 80s, but it depends on your circumstances and the kind of annuity you're considering.
-
In Your 50s and Seeing Retirement in the Distance? What You Do Now Can Make a Significant ImpactThis is the perfect time to assess whether your retirement planning is on track and determine what steps you need to take if it's not.
-
Your Retirement Isn't Set in Stone, But It Can Be a Work of ArtSetting and forgetting your retirement plan will make it hard to cope with life's challenges. Instead, consider redrawing and refining your plan as you go.
-
The Bear Market Protocol: 3 Strategies to Consider in a Down MarketThe Bear Market Protocol: 3 Strategies for a Down Market From buying the dip to strategic Roth conversions, there are several ways to use a bear market to your advantage — once you get over the fear factor.
-
For the 2% Club, the Guardrails Approach and the 4% Rule Do Not Work: Here's What Works InsteadFor retirees with a pension, traditional withdrawal rules could be too restrictive. You need a tailored income plan that is much more flexible and realistic.
-
Retiring Next Year? Now Is the Time to Start Designing What Your Retirement Will Look LikeThis is when you should be shifting your focus from growing your portfolio to designing an income and tax strategy that aligns your resources with your purpose.
-
I'm a Financial Planner: This Layered Approach for Your Retirement Money Can Help Lower Your StressTo be confident about retirement, consider building a safety net by dividing assets into distinct layers and establishing a regular review process. Here's how.
