The “young” investors of today are referred to as “millennials,” who tend to gravitate toward exchange traded funds, or avoid investing altogether. The fact that broad-based ETFs exhibit less volatility and better diversification through global exposure are two of the biggest reasons millennials prefer ETFs.
“The Echo Boomer generation (a.k.a Gen Y and the Millennials) tends to be a little cynical towards stock market investing, and it’s hard to blame them. They were children when the dot com bubble went bust in 2000 and most were still in college when the 2008 meltdown hit. This generation has NEVER seen a real bull market, and they question the received wisdom that stocks ‘always go up’ over time. Don’t underestimate the effects of watching their Baby Boomer parents take a beating on Gen Y’s reluctance to invest,” Charles Sizemore wrote in a recent letter. [What to Look for in a Core ETF Investment Portfolio]
Generation Y, or the millennials, have to conquer their fear of investing first. While many are fearful of the risk in the market, Alyssa Oursler for InvestorPlace points out that the risk of not being invested in the stock market is more damaging. Let’s face it, money market accounts are yielding under 0.50%, which can hardly keep pace with inflation. [Younger Investors are Biggest Users of ETFs]
Millennials are most likely to put their money into ETFs more than any other investment tool. According to a recent study by TD Ameritrade, there was a strong correlation between age and the ownership of ETFs, with those aged 26 to 35 holding 12.7% of their assets in ETFs. In contrast, 66- to 75-year-olds held only 6.2% of assets in ETFs, reports Sterling Wong for MinyanVille. [High Net Worth Investors Flocking to ETFs]
Recent data also suggests that younger people are more likely to invest in overseas markets. The ability to see beyond our stock market, while given a low-cost, easy to use ETF to access international stocks has helped push millennials to use these funds. Also, more Gen Y members are likely to speak to an advisor who will suggest ETFs. The level of comfort, along with the familiarity of ETFs for the younger generation is the biggest reason these investors prefer ETFs.
Tisha Guerrero contributed to this article.