Quoted in Australian Money Mag
Australian investors have more choice than at any point in history. According to InvestmentMarkets, that abundance is becoming a major obstacle to good decision-making.
Investors can access more than 2,000 stocks plus another 500 or so exchange-traded funds on the ASX as well as anywhere from 3,000 – 5,000 unlisted managed funds. That’s before considering any overseas options with most brokerage platforms now providing access to stock exchanges abroad.
Investors poured a net $30 billion into ETFs alone in the first six months of the year, matching the total invested across all of 2024. The central theme is expanding choice. Australian investors can now buy targeted exposure to artificial intelligence, humanoid robotics, quantum computing, semiconductors, rare earths, uranium, clean energy, cybersecurity, defence, space and more. InvestmentMarkets currently lists 54 thematic ETFs available to Australian investors.
InvestmentMarkets CEO Darren Connolly said the explosion in the number of products has been overwhelmingly positive for access, but that access and clarity are two very different things.
‘Twenty years ago, the challenge was simply getting access to investments. You needed a stockbroker. That’s no longer the case. Today the challenge is working out which of the thousands of options on your phone deserves a place in your portfolio. The very act of choosing has become infinitely more complex simply because of how crowded the investment shelf has become.’
Behavioural economists have been studying the consequences of choice overload for decades. One of the best-known demonstrations was Columbia University’s Sheena Iyengar and Stanford’s Mark Lepper’s ‘jam experiment’, which found that consumers presented with 24 varieties of jam were far less likely to buy than those offered six.
Connolly said the similar patterns can play out in investing, in two very different ways. ‘An investor can own six different funds and feel highly diversified, while unknowingly owning many of the same underlying companies six times over.’
‘We also see the opposite problem, which is investors who find it difficult to start. They open a screen, see thousands of products, feel unqualified to choose, and close the tab. Doing nothing can feel safer than choosing badly, but over a 30-year investment horizon, staying permanently on the sidelines carries a substantial opportunity cost.’
Connolly said the industry’s next challenge is not manufacturing more options but helping investors sort through the ones already on the shelf. ‘The market has spent decades solving for access. That job is largely done. Australians can now buy almost anything from their phones in all of 90 seconds.’
‘The unsolved problem is selection. What self-directed investors need is a way to compare like with like, understand what they already own, and work out what genuinely adds something to their portfolio rather than duplicating it. The winners over the next decade will not be the platforms with the longest product list. They will be the ones that make a crowded product market more navigable.’
His advice to investors is to start with objectives rather than the products. ‘Decide what you are trying to achieve and what job each investment should do before you go searching for the right products. Is it income, growth, defensiveness or inflation protection you are after? Remember: if a product does not have a job, it probably does not belong in your portfolio no matter how compelling the story is.’
‘Resilient portfolios are usually boring. They are built deliberately, reviewed regularly and changed rarely. That is always a much harder story to sell than the next big investment theme, and although it rarely makes headlines, it is the strategy that usually works.’