The exchange traded fund (ETF) space continues to expand as it attracts greater investor interest and assets. A new ETF Investor Study by Charles Schawb reveals the demand is showing no signs of slowing.
According to the study, 44% of participants plan on investing in ETFs over the next year. Eighty percent of those who already own ETFs say they will increase ETF holdings over the next two years, whereas only 2% believe they will decrease ETF holdings.
While investors have grasped the benefits ETFs offer, investors seem not have a strong understanding of the ETF products. Around 46% of participants labeled themselves as ETF “novices,” and 25% reveal that they do not understand the costs or how to best utilize the investment vehicle. Only 8% consider themselves experts, adding that the greatest challenge is shifting through all the different choices.
“Individual investors are attracted to the efficiency and flexibility of ETFs, but many do not have a solid grasp on how they work,” Beth Flynn, vice president of ETF Platform Management at Charles Schwab, remarked. “As more flavors of ETFs come to market, it is clear that the emphasis on education will be more important than ever.”
“Individual investors are simply not satisfied with their own knowledge of ETFs and want to learn more” Flynn added. “This combination of high investor demand for ETFs with low understanding makes an obvious case for more tools and better education across the investment spectrum.”
The study also found that investors consider costs as the #1 deciding factor, with 59% indicating expense ratios as “extremely important.” It was also revealed that commission-free trades was a lesser factor, with 43% noting that commission-free is important but not the only factor they consider and 23% only choosing commission-free ETFs.
For more information on ETFs, visit our ETF 101 category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.